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Health Saving Accounts
Treasury Department and Internal Revenue Service Issue Further Health Savings Account Guidance Regarding Preventive Care, Prescription Drug Coverage and Transitional Relief for the 2004 Calendar Year
On March 30, 2004, the U.S. Treasury Department and the Internal Revenue Service (IRS) issued additional guidance on health savings accounts (HSA's) originally established under Internal Revenue Code Section 223. This guidance is in the form of two IRS notices (IRS Notices 2004-23 and 2004-25), a revenue procedure and a revenue ruling.
In brief, this guidance consists of:
Preventive Care (IRS Notice 2004-23) — This notice provides a description of services that can be offered under a High Deductible Health Plan (HDHP) with no deductible or a deductible below the required minimum for an HDHP. Expenses include annual physicals, well-baby visits, immunizations and screening services. This notice provides that the determination of whether state mandated "preventive care" coverage is actually "preventive care" as defined in relation to HSA's will be based strictly on IRS guidance.
Transitional Relief for the Establishment of HSAs in 2004 (IRS Notice 2004-25). This guidance was issued in response to comments from individuals that they were having problems finding trustees or custodians who could open an HSA for them. This guidance provides that an HSA established by April 15, 2004, may pay expenses incurred on or after January 1, 2004, or if later, the date the individual became eligible for the HSA. This guidance provides transitional relief from the general requirement that HSA eligible expenses must be incurred after the HSA has been established.
No-deductible and Low-deductible Prescription Drug Plans (IRS Revenue Ruling 2004-38) — This ruling provides that an individual who is covered by a HDHP that does not provide prescription coverage and a separate drug plan (or rider) with no deductible or a deductible below the minimum required for a HDHP, is not eligible to participate in an HSA.
Copy of IRS Revenue Ruling 2004-38
Transitional Relief for Prescription Drug Plans (IRS Revenue Procedure 2004-22) - Due to the fact that many HDHP plans currently do have a separate drug plan or rider with no deductible or a low minimum deductible, the IRS has provided that such coverages provided prior to January 1, 2006, will not affect an individual's eligibility to participate in the HSA.
Copy of IRS Revenue Procedure 2004-22
Additional HSA guidance is expected in June, 2004.