RD6 - High-Deductible Plans Used with Medical Savings Accounts


Executive Summary:
House Bill 414 was passed by the 2002 Session of the General Assembly to address the implementation of the Virginia Medical Savings Account Plan. The bill requires the Department of Taxation and the Bureau of Insurance to perform certain duties regarding Medical Savings Accounts (MSAs) in Virginia.

The Bureau of Insurance is required to provide a report on the available plans or policies for high-deductible indemnity health insurance policies and a cafeteria menu of the insurance plans. The Bureau of Insurance is required to report this information to the Virginia General Assembly. The Department of Taxation made a separate report to the Joint Commission on Health Care, the Senate Finance Committee and the House Appropriations Committee.

Medical Savings Accounts were developed in part as a way to provide incentives for individuals to be cost-conscious in their purchases of medical services. The MSAs were envisioned as tools to provide people with more control over their health care dollars.

Participants in MSAs make tax-free deposits on a regular basis that are used to cover routine medical care up to the amount of the deductible. The high-deductible plan then covers expenses above the deductible according to the coverage terms of the policy. The earnings and other interest on the MSA are tax-free. A tax deduction can be claimed for the contributions even if there is no itemization of deductions. The contributions to the MSA remain in the account from year to year until they are used.

Contributions do not have to be made to the MSA every year.

The covered individual cannot have other health coverage. The prohibition does not include coverage for accidents, disability, dental care, vision care, long-term care, benefits related to worker’s compensation, tort liabilities, ownership or use of property, a specific disease or illness, or a fixed amount per day (or other period) of hospitalization according to Internal Revenue Services Publication 969.