The IRS has issued yet additional guidance smoothing the path for taxpayers who want to avail themselves of the new health savings accounts (“HSAs”). The guidance is Notice 2004-43 which addresses the road-block of state-law mandates, and provides for a transition period as follows:
Several states currently require that health plans provide certain benefits without regard to a deductible or with a deductible below the minimum annual deductible requirements of section 223(c)(2) (e.g., first-dollar coverage or coverage with a low deductible). These health plans are not HDHPs [High Deductible Health Plans] under section 223(c)(2) and individuals covered under these health plans are not eligible to contribute to HSAs. Because of the short period between the enactment of HSAs and the effective date of section 223, these states have had insufficient time to modify their laws to conform to the standards of section 223. Thus, it is appropriate to provide transition relief that treats HDHPs as qualifying under section 223(c)(2) when the sole reason the plans are not HDHPs is because of state-mandated benefits. During the transition period, otherwise eligible individuals covered under these plans will be treated as eligible individuals for purposes of section 223(c)(1) and may contribute to an HSA.
The transition relief runs out on January 1, 2006, and will not apply to state mandates that were not in effect on January 1, 2004.
Previous post on the subject: “Health Savings Accounts and the Barrier of State Mandates.”