Pennsylvania legislators have effectively overturned the controversial Commonwealth Court decision in Ignatz v. Commonwealth of Pennsylvania, 2004 WL 1057453 (Pa. Commw. May 12, 2004) through enactment of House Bill No. 176. (You can read the text of the bill here.) The bill was approved by Governor Rendell on July 7, 2005. Buchanon Ingersoll has a great summary of the development here.
Also, legislation was passed in Pennsylvania removing a state law mandate which was a barrier to insurers offering high deductible health plans in connection with health savings accounts. The legislation, House Bill 107, was approved by the Governor on July 14, 2005. (Access the text of the legislation here.) The bill also provides that the following shall be exempt from taxation in Pennsylvania:
- (1) any income of a health savings account;
(2) any amount paid or distributed out of a health savings account that is used exclusively to pay the qualified medical expenses of the account beneficiary; and
(3) any amount paid or distributed out of a health savings account that is used exclusively to reimburse an account beneficiary for qualified medical expenses.
Please note that individual or employer contributions to health savings accounts unfortunately do not appear to be exempt from state income tax in Pennsylvania. This article here reports that “[u]nder the original legislation, contributions to HSAs by employers and employees would not have been taxable for state income tax purposes.” The article goes on to explain that “under pressure and threat of veto from the Rendell administration, the tax exclusion language for contributions was stripped from the bill immediately prior to its passage.”
Read more about the impact of state law mandates on health savings accounts in this previous post here.