The MSA Page

Medical Savings Accounts

(Title III, Subtitle A)

MSA Demonstration Project
MSA Funds, General
MSA Contributions
MSA Contribution Comparability
MSA Withdrawals
High Deductible Plan / Permitted Insurance
Tax Issues


How is an employer judged to be 50 employees, can they have exceeded 50 in the prior year, must they have averaged 50 for the past year or they are below 50 lives when the MSA is established. what happens if employer grows after beginning the MSA to far in excess of 50 lives?

    H.R. 3103 defines eligibility as on average, no more than 50 employees during the preceding or the second preceding year.

Other than being 50 lives or less is there any restriction as to who can form an MSA? For example must they currently offer insurance to their employees or have not offered medical insurance coverage for a period of time.

Are there any restrictions on which employers are eligible, other than the size requirement?

    No. H.R. 3103 allows any small employer who meets the definition of a small employer) to establish a qualified high-deductible plan and an MSA. If the employer was uninsured for at least the previous six months, and they establish an MSA arrangement, the persons covered by the plan will not be counted toward the demonstration cap since they fit the description of qualified uninsured.

If an employer establishes MSA and then the cut off is reached and/or the employer grows to more that the allowable size, will the employer be able to continue to enroll new employees in the MSAs?

    There are two separate scenarios described in this question, and each is treated differently by H. R. 3103. After the 750,000 MSA cut off is reached, employers that continue to fit the definition of a small employer or growing employer may enroll new employees in the MSA plan.

    If an employer ceases to fit the definition of small or growing employer, (i.e. starts out as a small employer with 50 or fewer employees and then grows to an average of over 200 employees after 1996), in force MSAs may continue, but new employees would not be eligible for the MSA plan. This holds true whether or not the cap is reached.

If an uninsured employee of an employer with fewer than 50 employees, whose employer does not offer any coverage, wants an MSA plan, can they qualify for one as a previously uninsured individual? Can an employee of employer over 50 employees in the same situation also be eligible for an MSA plan?

    We believe the intent of the law was to allow employees of small employers to establish their own MSA and high deductible plan if it was not provided by the small employer. According to the letter of the law, however, in order to be eligible for an MSA, the high deductible plan must be established and maintained by the small employer. On this basis, in neither scenario described in the question would the individual be allowed to establish a health plan and MSA.

Define "previously uninsured". Does insurer have any obligation to investigate or prove "previously uninsured" or take the app1icant's word for it?

    Any individual who was uninsured during the previous six months is eligible for an MSA and won't be counted toward the cap. We believe that the exact mechanism for determining eligibility is subject to regulations.

Can a married family have an MSA and companion major medical covering one or more family members, and non-MSA medical expense on the remaining family members?

    Since eligibility of the MSA arrangement is subject to the employer size and that it be employer-maintained, it seems plausible that family members may be covered under more than one health plan. For example, a husband could have an MSA/high deductible plan and the wife could have another type of insurance product and the dependents might be on either health insurance policy.

If the major medical coverage does not cover the entire family, can the non-covered family members utilize the funds in the MSA for their qualified expenses?

    The eligibility requirements for the MSA specify that the MSA and the high deductible plan are tied together. MSA funds may only be used for those covered under the MSA-eligible plan. The only exception to this is a case in which there are no contributions during the year except rollovers.

Is CHAMPUS a prohibited benefit preventing an ex-military person or dependent from participating in an MSA?

    Since eligibility is tied to the employer, ex-military personnel who retain CHAMPUS coverage are not eligible for an MSA plan.

There are certain entities called co-employers or "administrative employers". These are not VEBAs, METs, or MEWAs. They are defined under §401 in the current tax code. These entitles are comprised mostly of small employers (50 employees or less) who contract with a single entity (administrative employer) to perform certain responsibilities such as: administer and manage payroll; provide state and federal reports as required; pay mandatory state and federal payroll taxes; purchase worker's compensation, pension, insurance, and health insurance, etc. In effect they use the large numbers to pool risk, effect purchasing leverage, and gain other economies and efficiencies.

How will H.R. 3103 treat these small employers. May an "administrative employer" acting on behalf of the collective interests of participating small employers establish tax preferred MSAs? Or, will such arrangements collectively numbering many employees automatically disqualify tax-preferred MSAs for this group? If by definition, they are not eligible to establish tax preferred MSAs, what steps might they take to become eligible?

H.R. 3103 requires the high deductible plan to be established and maintained by the employer. Does joining an existing MEWA satisfy the "established" by requirement? (The MEWA is established and maintained by an association).

    The eligibility rules are relate only to the size of the employer, not to a third-party administrative service. If the employers fit the definition of small employers, the should be allowed to establish MSAs. We are not certain whether an otherwise eligible small employer who joins a MEWA is able to participate in the MSA demonstration, but we will seek further clarification.


MSA demonstration project

Are brokers and agents to be allowed to solicit employers for MSA plans?

    Yes and we encourage them to do so.

How are current small group regulations affected by the MSA legislation?

    We believe the MSA legislation is a separate issue from most small group regulations and will not necessarily affect them. H.R. 3103 deals with a majority of the small group provisions elsewhere in the bill. The MSA provisions simply add an option for small employers who want to offer health insurance to their employees. Provisions like participation and contribution requirements would remain in place.

What happens if more than the limit of 750,000 MSAs are created prior to having been tallied by the IRS? With so many different companies all over the country getting into the MSA market, it seems that this could easily occur.

    We certainly hope that this will occur. Further, we believe that all MSAs established before the cap is declared will be allowed to continue. If the response is overwhelming, perhaps Congress and the Administration will be compelled to expand the availability of MSAs.

The number of new tax-favored MSAs established in the first 4 months of 1997 may exceed the 375,000 threshold. Does current legislation permit allowing all accounts established up to the time of public announcement of a cap, or, will all accounts established in excess of the cap be denied tax favored status? If not, what legislation is required to assure status for MSAs established in good faith by employers and employees and self-employed persons? If there is no mechanism to assure allowed deductions, why should employers and employees want to risk starting MSAs only to be denied their deduction a year or two or three after the fact?

    Technically speaking, the demonstration project is capped at 750,000 taxpayers, exclusive of previously uninsured individuals. If the cap is reached by the first IRS count, we expect that Treasury will declare that no more MSAs may be established. Those individuals who already have an MSA will be able to keep it, but no more will be sold, except for new employees of a small employer who has already established an MSA plan. We are hoping that the limit is exceeded and will compel Congress to remove the numerical limitation.

Big questions continue over allowing MSAs established in excess of the cap to qualify as tax-favored. The allowable status in relation to the Treasury/IRS announcement dates is the issue. Employers and employees fear establishing a tax-favored program, only to find in retrospect they missed the window and must later face disallowance and/or audit. Will we get clarification of this issue, when?

    MSA plans established before the appropriate source declares that numerical cap has been reached may remain in force. This means that even if 5 million MSAs are established before any cut-off date, none will be disallowed in retrospect. Further, small employers may continue to add new employees even after the cap has been reached or the four-year term is over. This is not an issue in need of clarification.

What system unambiguously will establish who opened an MSA as of what date?

    The exact timing of an MSA purchase is at issue. If an MSA plan is established during the allowable period (before the demonstration project is deemed closed by the IRS) then that MSA may remain in force.

How will Treasury and IRS announce and publicize in timely fashion the closing of establishing new MSAs and reopening if that occurs?

    We believe that Treasury will spell this out in the regulations.

Collecting and reporting of federal data is notorious for error and omission. What steps will be taken to assure the public of the accuracy, validity, and reliability of its active MSA counts?

    New processes will have to be invented through the regulatory process and CAHI will be watchful of this.

Does an employer have to request permission from the IRS in advance to offer an MSA? What happens if an employer begins offering an MSA and is then informed several months later that the 750,000 person experiment has been exceeded? Does that employer lose their IRS exemption for the MSA? What happens if an employer loses their exemption, are they and their employees liable for the taxes retroactively and are there any other penalties that employer or insurer is liable for?

    A small employer that meets the definition in the bill does not need to request permission from the IRS in order to establish an MSA plan. The employer simply needs to establish the plan in the small group market. If the cap is exceeded. MSAs already in force will be allowed to continue, so the tax status of MSAs will not be forfeited.

Who will be allotted 750,000? Can a marketing organization in essence reserve or apply, for example, for 5,000 contracts?

    It will be on a first come first serve basis, as policies are sold.

Once the MSA limit has been reached, are existing accountholders allowed to change the trustee of their MSA accounts and/or switch high deductible plans?

    MSA owners are allowed to switch trustees or health plans. The bill does limit MSA rollovers to one per year.

H.R. 3103 refers to taxpayers, subscribers, policies, etc. What measure will be used by the Department of Treasury to determine the numbers of MSAs?

    H.R. 3103 uses taxpayers so it can tie the MSA to the taxpayer's tax reporting status. For example, a family of five members with an MSA would be counted as one taxpayer for purposes of calculating the total number of MSAs.

Will government counts of MSAs be in aggregate only for the nation or will geographic counts be provided?

    We do not know what data elements will be required by the regulations, but we assume that the regulations will address this issue. If geographic data is collected, and we assume it would be, then data could certainly be sorted according to area.


MSA funds, general

In section (d)(1)(A)(ii) it states that an MSA trust must not accept contributions by an account holder in excess of 75% of the highest annual deductible prescribed by the law. Is the intent of this provision to limit accountholder's contributions to the amount eligible for tax deductibility? If not, can a policyholder fund their MSA account beyond the defined limits for deductibility?

    Excess MSA contributions are specifically prohibited.

How will "players" i.e. insurance companies be identified?

    Insurance companies will identify themselves through their regular marketing channels.

The bill defines a Medical Savings Account as a trust. Do you know whether Treasury has issued any directives yet on how a company goes about declaring its interest in creating an MSA trust?

    There is no indication in the law that a company needs to correspond with the Treasury department in order to offer an MSA to eligible individuals. Potential MSA administrators will simply set up the procedures and administrative details, and begin offering MSAs.

Are MSA funds allowed to build up over a period of time?

    Yes. There are no provisions in the law limiting accumulation of funds in the MSA.

If funds of the MSA are held by a bank, will interest accrued on the funds be subject to taxation?

    Whether MSA funds are held by a bank, an insurance company or other institution, interest is not taxable. The fact that MSA interest is not taxed has nothing to do with the administrator.

MSA funds must be non-forfeitable. Does this mean: (a) they may not revert back to the employer or (b) they must be invested in something that guarantees principal?

    The bill provides that MSA funds belong to the employee, but does not specify that the MSA account must guarantee principle.

Can participants self direct the investments of the MSA? For example, if I have an MSA with $10,000 accumulated may I direct the trustee to invest that in General Motors stock? How about an investment in my FBG stock?

    MSA funds will not revert back to the employer like FSA funds.

    The MSA belongs to the individual because MSAs are individually owned similar to IRAs. Funds can be deposited with a bank, an insurance company or with others that can demonstrate to the Secretary that they can be entrusted to administer the MSA trust. H.R. 3103 does not specify that the funds must be invested in something that guarantees principal unlike other proposed MSA bills did. If the MSA administrator has satisfied the Secretary's requirements and part of their plan involves self-directed investments, then the answer is yes.


MSA contributions

If MSA dollars are submitted to a carrier prior to 1/1/97, can the carrier hold the money and communicate to the customer that neither interest nor MSA benefits will be paid until 1/1/97?

    There may be circumstances where MSA dollars are submitted to the MSA administrator prior to the actual effective date of January 1, 1997. For example, an employer that has a qualified high-deductible health plan and uses the insurance carrier as the MSA administrator may wish to make combined periodic payments. So for premiums due on January 1, 1997, an employer's check may arrive at the carrier's office prior to January 1. The carrier would simply hold these funds until January 1. Any MSA administrator, whether a carrier or bank, would want to make it abundantly clear that the MSA is not actually established until January 1, 1997. In succeeding years, this will not be an issue.

What tracking mechanisms will document when, who, and how MSA contributions are made by employer or employee? Will health plans, insurers be responsible for maintaining tracking mechanisms for contributions?

    This kind of tracking will be up to the employer, who is required to show MSA contributions on the employee's W-2 form. There may be reporting required by the MSA administrator as well. Only when the insurer is also the MSA administrator, however, will such tracking be the responsibility of the insurer.

Are MSA contributions to be tracked on a plan year or calendar year basis?

    Calendar year.

With regard to the monthly limitation defined in section (b)(2), is it possible for the policyholder to fund their MSA in a lump sum equal to the total monthly contribution limits?

    Yes. In fact, the lump sum contribution can be made as late as April 14 of any year for the preceding year.

Is it permissible to fund the MSA as IRAs are funded, i.e., in discretionary chosen lump sums or must it be funded in regularly scheduled deposits?

    Yes. Lump sums, however, may only include an amount equal to the allowable monthly contribution times the number of months the person was eligible. In other words, a person cannot make a full-year contribution unless he or she was eligible for the entire year (unlike IRAs).

Is it permissible to have a short plan year for an MSA? Is it permissible to have back to back short years? Are the annual limits in a short year to be pro-rated or is the full annual limit available each plan year? For example, if an MSA is established in July may it be funded to the limit (perhaps $2,000) between July and December and them a new $2,000 funded during the next year?

    MSA contributions are calculated on a monthly basis. In other words, if you have an MSA for 3 months of a calendar year, you are only eligible to contribute 3/12ths of the total amount. MSA contributions are not allowable in the same way as an IRA.

What options are there for an employee who has a qualified high deductible plan through an employer and the employer contributes to the MSA, but the employee leaves her job after 5 months in 1997 to become self-employed? May the employee use either COBRA (if available) high-deductible plan or purchase an individual plan and then make her own MSA contributions for the rest of the year? Or take the example of the same person who leaves the same first job for another small employer who offers a high deductible qualified plan but makes no MSA contribution. May that employee then make an MSA contribution for each of the remaining months of that same year, or is she prohibited from further MSA contributions since only the employer or the employee may do so in a year but not both?

    A self-employed person is allowed to establish and maintain a high-deductible health plan in order to qualify for an MSA. Therefore, if the health plan established by the self-employed person qualifies, the person may continue to make MSA contributions.

    In the second case, the law is not specific. Since MSA eligibility is determined month by month, it would appear that a person could make MSA contributions as either a self-employed person or an employee of an employer that does not contribute, without regard to what may have been the case under a former employer. In other words, a part-year employer does not have a whole-year effect on the employee.

If an eligible person establishes an MSA in 1997, contributes to it for half of 1998 and makes no further contributions to the MSA but maintains the account beyond 2000, may that person again make MSA contributions in, say, 2001 with a qualified high deductible plan provided by self or an employer?

    If the person maintains continuous eligibility, as either an employee or as a self-employed person, eligibility for MSA contributions is also maintained. The law does not require contributions to be made.


MSA Contribution Comparability

Regarding employees of employers who don't contribute to the MSA portion, yet allow individual contributions: How are the individual contributions made, are they excluded from employees income through payroll, or only offered a tax deduction on their income tax return after being taken from their pay as after tax money?

    Individual contributions to MSAs would be deducted on an individual's tax return. This deduction will be an adjustment to gross income, and, therefore, available whether or not a person itemizes deductions.

If an employer contributes $1,000 to an MSA for employee number 1 and nothing to the MSA for employee number 2, may #2 make voluntary contributions to an MSA?

Is an employer permitted to allow an employee to choose between an MSA and other uses of the employer's contribution? We think that choice is available, i.e., if the employer is willing to set aside $100 per month for the employee in addition to paying for the premium on the catastrophic coverage then the employee should be able to select a $1,200 MSA or a reduction in the employee's premium for dependent coverage.

    H.R. 3103 is very specific on employers and comparability rules for employees. A literal reading of these provisions would support that MSA contributions must be made to the MSA and not to the individual. However, it depends on the regulations. Further, an employer must make all employee MSA contribution amounts equal as to amount or percentage.

If an employer offers a qualified high deductible policy, may the employee choose to make the MSA contribution rather than the employer, even though the employer makes the MSA contribution on behalf of other employees?

    The law states that only the employer or the employee, but not both, may make contributions to the MSA in a single year.

    The law also requires comparable contribution to be made to the MSA on behalf of all comparable employees. The law does not offer other alternatives, although it is likely that such alternatives may be allowable.

Assume a small employer offers an MSA program that meets the federal requirements, but one or more employees are ineligible to have an MSA and it is the only benefit offered. How will ERISA treat this employee benefit welfare plan if the employer offers only the tax favored MSA plan and the employer makes a "comparable" employee MSA contribution throughout the year?

May the affected ineligible employees accept the high-deductible insurance coverage, and accept the MSA employer contribution, but in this case the contribution must be taxable income to the employee and to the employer's payroll taxes? Does this not raise a series legal question regarding discrimination between various employee populations?

    If an employee works for a small employer that establishes and maintains a qualified, high-deductible plan, the employee is eligible to have an MSA. The provisions on comparability apply in this case.

According to section (b)(3), if either or both married individuals have family coverage, they are allowed to deduct 75% of the lower policy's deductible amount divided per person. How is this rule applied if either or both married individuals have individual coverage?

    The law does include any specific restrictions for married individuals who each have individual coverage. It is our interpretations that each person would be allowed to contribute and deduct the allowable 65% of their respective deductible amount. It appears also that this would still be counted as one MSA.


MSA withdrawals

Are MSA annual fees and transaction charges considered qualified expenses for MSA funds?

    MSA administrators will certainly come up with a variety of structures for assessing set-up and transaction fees, crediting interest, etc. It is most likely that costs associated with MSA fund administration will be considered qualified expenses.

Can medical expenses for the taxable year be reimbursed from the MSA up until the tax filing date for that year (i.e. April 15)? Can those expenses be reimbursed beyond that date?

    Reimbursements from MSAs are not tied to the tax year. April 15 is the deadline only for allowable contributions, so the timing of withdrawals is irrelevant to the tax treatment of the MSA. Claims can often take substantial time to work their way through the system before payment is required from the individual. Further, the individual may not seek reimbursement from the MSA immediately. Therefore, it would not be unusual for a person to withdraw money from an MSA in one year for expenses from a prior year.

If an MSA benefit is paid and subsequently, in a later tax year, found to have been made in error, is it permissible to correct by issuing a current 1099 or must the participant and plan make retroactive corrections to the tax year in question?

    This question is related to the previous one. MSAs are self-administered.

    They are very similar to a checking account into which deposits are made and out of which withdrawals are taken. The MSA administrator is only concerned about the total deposits and the total withdrawals. It is up to the account holder to maintain records that will substantiate the withdrawals.

    The MSA administrator would neither be responsible for nor have the information necessary to issue a 1099. The account holder would need to make the corrections.

Will there be any proof required to verify the eligibility of the individual incurring expenses on whom an MSA claim is presented or will an affirmation suffice?

Is the MSA account holder responsible for qualifying medical expenses?

Who determines whether a payment from a tax preferred MSA is a qualified withdrawal (expense) per Section 213 d. Will TPAs, a health plan, the insurer, or fiduciary have this responsibility? If none of these do, who will?

How will income tax reporting occur? How and under what mechanism will non-qualified payments or withdrawals from the MSA be documented and reported to the account holder and the IRS?

    Medical Savings Accounts are intended to be self-administered.

    The account holder will seek reimbursement for eligible expenses, but the MSA administrator will not "adjudicate" claims or determine whether distributions are qualified. That is up to the account holder.

    One of the strongest argument in favor of MSAs is the administrative savings realized when insurers are not adjudicating claims associated with low-deductible policies. The onus of compliance with MSA distribution regulations is on the account holder. While MSA administrators may report total disbursements, it is up to the account holder to maintain records that substantiate the withdrawals.

Does the employee have an unrestricted right to withdraw funds from an MSA if they are willing to pay the taxes and penalties?

    Yes since the MSA is individually owned and reported on the individual's tax return.

At age 65, can an MSA account holder withdraw MSA funds for non-medical purposes?

    Yes. In such a case, MSA withdrawals are counted as regular income and not subject to a penalty.

How do the services of alternative provider types work under Section 213(d)? Are those specified services deemed deductible for purposes of income tax limited to registered, certified, and licensed providers?

    H.R. 3103 does not alter the provisions of IRC §213(d). Expenses currently deductible under this section will be considered qualified distributions from an MSA.

Since MSAs will be subject to multi-year accumulations and are not really defined by the annual allocation, are MSA reimbursements required to be paid as claimed or paid as funded?

What mechanisms will provide for excess expenditures above amounts available in MSAs?

    MSAs belong to the individual and are self-administered. Therefore, disbursements can only be made to the extent that MSA funds are available. If a person has qualified expenses, but inadequate funds in the MSA, full reimbursement would not be made until sufficient funds are available.

Since MSAs belong to the employee-participant, are there any restrictions on how the administrator may charge for claims administrative services after the employee leaves employment with the original plan sponsor?

    The MSA belongs to the individual and the original plan sponsor becomes irrelevant if the individual were to leave. The MSA goes with the individual owner and could be maintained by the same MSA trustee or rolled into a new account. We are not certain how administrative costs will be charged.

Section (d)(2)(B)(ii)(II) provides that long-term care insurance premiums can be paid out of the account for "qualified long-term care insurance contracts". What is the definition of such a plan?

    H.R. 3103 defines "qualified long-term care insurance contract" under the long-term care section of the bill (Title III, Subtitle C).


High deductible plan / permitted insurance

Would a PPO coinsurance reduction (penalty) count toward out-of-pocket maximums specified in H.R. 3103? Likewise a 50% psych. benefit, or an Rx deductible?

    There might be three separate issues here. The bill sets the cost-sharing limits, as specified in the excerpt below. The deductible language is straightforward. It is the maximum out-of-pocket that brings up these questions.

    First, in satisfying deductibles and co-insurance, companies will continue to apply adjudication procedures such as usual, reasonable and customary (URC). That is to say that not everything spent by a participant on covered services will count toward the deductible or co-insurance.

    In the case of the PPO penalty, if a person goes to a non-PPO provider, is the entire amount paid to the provider, less any adjustments for URC, applied to the deductible? If the answer today, before this bill goes into effect, is 'no,' we believe the answer will continue to be 'no.' In other words, only expenses actually allowed under the plan are counted toward the plan. We believe the underlined portion of the excerpt points to this.

    We would characterize it in this way as an example: A participant will be required to pay the first $1500 of allowable expenses for covered services, and 20% of the next $5000 of allowable expenses for covered services (all of which is subject to URC), for a grand total of $2500 for allowable expenses for covered services.

    H.R. 3103 defines "qualified long-term care insurance contract" under the long-term care section of the bill (Title III, Subtitle C).

    Again, however, the 50% will be calculated on the basis of URC. It also appears that a separate Rx deductible will count against the total out-of-pocket, but we want to research that further.

With H.R. 3103 permitting high deductible plans as prescribed in federal law, might this be interpreted as providing general availability of same across all states thus precluding interference or tactical delays on the part of insurance commissioners?

I know H.R. 3103 defers MSA/deductible plan regulation to the states to a degree, but it is unclear to me the extent to which the states may/might muck up those qualified plans.

    While there may be a scant few state laws that prohibit high-deductible plans, such plans are already generally available across the country. While the law does not require insurance commissioners to approve high deductible plans filed by carriers, this is already taking place.

Can HMOs impose deductibles?

    Yes. Title I Subtitle C of H.R. 3103 allows federally qualified HMOs to impose high deductible plans for MSA purposes.

Does the limitation on out-of-pocket expenses (section (c)(2)(A)(iii) preclude the inclusion of a maximum lifetime benefit in the high deductible plan?

Would the existence of an overall maximum, say $1,000,000, be acceptable or would it violate the potential out-of-pocket maximum?

    No the bill does not prohibit lifetime maximums.

Does a high deductible policy with a policy-year deductible qualify as an MSA companion product, or must it be a calendar-year deductible?

    This does not appear to be addressed in H.R. 3103 and we believe it does not make a difference.

Section (c)(3)(A) allows Medicare supplement insurance in addition to the high deductible plan. What is the purpose of this allowance, considering the ownership of both types of coverage result in duplicate coverage which is not allowed by law?

    H.R. 3103 will not allow individuals to have dual coverage. However, an individual who had an MSA can keep the MSA if they turned 65 and then purchased a Medicare Supplemental policy.

Is a HIP (Hospital Income Plan) permitted for an employee covered under an MSA?

    HIP coverage is specified by the bill and 'permitted insurance,' meaning that a person can have this kind of coverage in addition to the regular high deductible plan established and maintained by the employer.

If a person buys an insurance policy to get an MSA, must the MSA be with the same insurance company that issues the insurance policy?


Are there any minimum standards with respect to benefit structure? For example, would a plan which covers only those expenses related to hospital care qualify for an MSA7

    H.R. 3103 doesn't appear to contain any minimum standards with respect to benefit structure. We believe the intent of the law is for major medical coverage. Perhaps this should be addressed in the regulatory process but we hope not.

Is any distinction contemplated between per cause and all cause deductibles? For example, would a plan that provides for a $600 per cause deductible qualify if the total of all deductibles in a calendar year was limited to $1,500 or $2,250?

    This scenario appears to meet the intent of the law. We would seek this clarification through regulation.

Would a deductible carry-over provision impact the qualification of a plan? For example, under many major medical contracts, if a person with a $1,500 deductible becomes ill in the fourth quarter of year Y and incurs $5,000 of expenses, the $1,500 applied in year Y is also applied for year Y+1, which effectively reduces the deductible to zero for that year.

    It seems clear that such an insurance policy still carries a $1500 deductible. We believe that the issue of the annual deductible is separate from the issue of a certain benefit of a health plan, such as that described in this question.

    We would certainly advocate this position in the regulatory process.

H.R. 3103 calls for the allowed deductible amounts to be indexed according to the CPI. Does this mean that the deductibles on in force policies have to be adjusted also in order to maintain qualification?

    H.R. 3103 does require the deductible and out-of-pocket maximums to be increased according to the CPI after calendar year 1998. While the law might appear to require an in force plan to be similarly adjusted in order to continue as a qualified high-deductible plan, we believe this provision only refers to new business. We will seek further clarification.

Does the bill allow self funding of MSAs, if so what is the minimum/maximum specific stop loss and minimum/ maximum aggregate attachment point allowable.

    H.R. 3103 does not address this scenario.


Tax Issues

Is the trustee of the MSA fund to collect specific tax identification information on a prescribed form?

    H.R. 3103 prescribes no specific reporting format. Reporting elements will certainly be identified in regulations, although it seems likely that data elements collected will include a person's tax identification number (SSN).

H.R. 3103 addresses IRC §220 (e) and says an MSA "is subject to the taxes imposed by §511 (relating to the imposition of tax on unrelated business income of charitable, etc., organizations). Many Blue Cross and Blue Shield organizations are tax exempt and are subject to the tax on unrelated business income. If a Blue's plan conducts an MSA program and holds the MSA assets (presumably making a contribution to its surplus as a result the nonprofit equivalent of a profit) will that Blue's plan be subject to tax on unrelated business income?

    No; the unrelated business income tax would not apply to any specific MSA account holder that had profits from running its own business.

Is the intention of Section (f)(5)(B) to prohibit more than one roll-over of MSA funds in a period of one year's time?

    We believe the answer is yes, but are seeking clarification.

Will CAHI publish findings of actual MSA experience showing savings compared to HMO and conventional health plans? Will CAHI publish findings of adverse selection observed in single plan and multi-plan settings?

    CAHI will continue its exhaustive research of MSAs. This MSA demonstration will make extensive actual data available to CAHI for future publications.

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