Bulletin 1997-4 Medical Savings Accounts

Issued by Kansas Insurance Department, Kathleen Sebelius, Commissioner

April 8, 1997

TO: All Insurance Companies Authorized to Transact Accident and Health Business in Kansas

SUBJECT: Kansas high deductible, comprehensive health insurance policies used with Medical Savings Accounts.

The purpose of this Bulletin is to notify all insurance companies that high deductible comprehensive health insurance policies issued in conjunction with Medical Savings Accounts (MSAs) in Kansas may not receive favorable tax treatment as allowed by the Health Insurance Portability and Accountability Act of 1996.

Recently, an official of the United States Department of the Treasury informed this department that because Kansas insurance law requires health insurance policies to have first dollar coverage, for services rendered in treatment of alcoholism, drug abuse or nervous and mental conditions (K.S.A. 40-2,105) high deductible comprehensive health insurance issued in this state will probably not receive favorable tax treatment.

Prior to receipt of this information there had been considerable discussion between this department and the Department of the Treasury as to whether the Kansas mental health mandate could be considered preventive care under the "safe harbor" federal exclusion for high deductible plans and therefore qualify as a high deductible plan. The department will continue to pursue this issue at the federal level; however, at this time, it appears appropriate for companies to be made aware of this matter.

Please be advised this department is asking the legislature to amend K.S.A. 40-2,105 to allow high deductible, comprehensive health policies to receive favorable tax treatment when issued in conjunction with medical savings accounts. Our legislative proposal would require the payment of current mandated benefits after the insured has met his or her deductible. If legislation is considered and enacted, July, 1, 1997, would probably be the earliest date the Kansas mental health mandate could be revised to accommodate the issuance of such medical savings accounts.

Currently the marketing of high deductible, comprehensive policies issued in conjunction with medical savings accounts for the purposes of receiving favorable tax treatment may constitute a misleading and deceptive act in transacting the business of insurance. Failure of companies to comply with Kansas insurance law could result in mandatory fines and/or penalty provisions in accordance with Kansas law.

If your company has issued comprehensive health insurance policies in conjunction with medical savings accounts, please provide this department with the names and addresses of insureds covered under such policies. At this time, it would seem appropriate for companies to notify in writing each insured that their medical savings accounts may not receive favorable tax treatment. This notice must include an offer to refund all premiums paid to those insured who may ask to surrender their policies. Please provide us a copy of such notifications. Also, please instruct all persons who are involved in the marketing and administration of your high deductible, comprehensive, medical plans issued in conjunction with medical savings accounts of this bulletin.

If you have any questions or comments regarding the information contained herein, please direct them to the Accident and Health Division of this Department, 420 SW 9th Street, Topeka, Ks 66612, (913) 296-7850.

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