An Act Authorizing the Creation of Individual Medical Savings Accounts
Maine Legislature, Session 121, LD 0950
Committee: Insurance and Financial Services
Sponsors: CLOUGH, GLYNN, SUSLOVIC, TRAHAN
Amends: 36 MRSA §5122, 36 MRSA §5164, 36 MRSA §5204-C, 36 MRSA §5220

Legislative Document 
No. 950 
H.P.707 
House of Representatives, February 25,2003 
An Act Authorizing the Creation of Individual Medical Savings 
Accounts 
Reference to the Committee on Insurance and Financial Services suggested and ordered 
printed. 
Presented by Representati ve BOWEN of Rockport. 
11/~/J7.~ 
MILLICENT M. MacFARLAND 
Clerk 
Cosponsored by Representatives: CLOUGH of Scarborough, GLYNN of South Portland, 
SUSLOVIC of Portland, TRAHAN of Waldoboro. 
Printed on recycled paper 
Be it enacted by the People of the State of Maine as follows: 
Sec.!. 24-A MRSA c. 33-A is enacted to read: 
CIIAPTER 33-A 
INDIVIDUAL MEDICAL SAVINGS ACCOUNT ACT 
§2761. 
Short title 
This chapter may 
be 
known 
and cited as 
"the Individual 
Medical Savings Account Act." 
§2762. 
Definitions 
As 
used 
ln this 
chapter, 
unless 
the 
context 
otherwise 
indicates, the following terms have the following meanings. 
1. 
Account administrator. 
"Account administrator" 
means 
any of the following entities permitted as trustees of medical 
savings accounts pursuant to 26 United States Code, Section 220: 
A. 
A financial institution <:l.uthorized to do business in 
this State as defined in Title 9-B, section 131, subsection 
B. 
An insurance company, health maintenance organization or 
3rd-party administrator authorized to do business in this 
State pursuant to this Title; or 
C. 
A nonprofit hospital and medical service organization 
authorized to do business in this State pursuant to Title 24. 
2. 
Account holder. 
"Account holder" means 
an individual 
who has established an individual medical savings account. 
3. Eligible medical expenses. 
"Eligible medical expenses" 
means expenses paid by an account holder for medical care that 
are described in 26 United States Code, Section 2l3(d). 
4. 
Individual medical savings account. 
"Individual medical 
savings account" or "account" means a trust created or organized 
to pay eligible medical expenses. 
§2763. 
Establishment and proceduref~ 
Individual 
medical 
savings 
accounts 
may 
be 
established 
subject to the following procedures'L 
Page l-LR1334(1) 
• 
• 
1. 
Health 
insurance 
coverage. 
Before 
establishing 
an 
individual 
medical 
savings 
account, 
the 
prospective 
account 
holder must obtain or have a high deductible health plan that 
meets the following conditions: 
A. 
For individual coverage, 
the health insurance policy 
must have an annual deductible of not less than $1,500 and 
not more than $2,550; 
B. 
For family coverage, 
the health insurance policy must 
have an annual deductible of not less than $3,000 and not 
more than $4,500; and 
C. 
The 
annual 
out of pocket 
expenses, 
other 
than 
for 
premiums, 
for covered benefits may not exceed $3,000 for 
individual coverage or $5,500 for family coverage. 
The annual deductible and annual limit on out of pocket expenses 
established in this subsection may be adjusted to conform to any 
cost of living adjustment made pursuant to 26 United States Code, 
Section 220. 
2. 
Account 
establishment. 
A 
person 
may 
establish 
an 
individual medical savings account for taxable years beginning 
after December 31, 2003. 
The account must be established as a 
trust under the laws of this State and must be placed with an 
account administrator. 
At the time of establishment, the account 
administrator 
shall 
notify 
the 
account 
holder 
of 
potential 
federal 
lncome tax liability that may be associated with the 
account. 
3. 
Payment 
of eligible medical 
expenses. 
The 
account 
administrator may 
use the 
funds 
in an account solely to pay 
eligible medical expenses of the account holder and members of 
the account holder's household that are not otherwise covered 
under the account holder's existing health insurance coverage. 
Funds 
held in an 
account may 
not be 
used to cover medical 
expenses of the account holder or members of the account holder's 
household that are otherwise covered, including, but not limited 
to, medical expenses covered pursuant to an automobile insurance 
policy, 
a 
workers' 
compensation 
insurance 
policy 
or 
a 
self-insured workers' compensation plan. 
If the account holder 
submi ts appropriate documentation to the account administrator, 
the account administrator may reimburse the account holder from 
account funds for eligible medical expenses paid directly by the 
account holder during the taxable year. 
4. 
Employer 
contribution. 
Upon 
agreement 
between 
an 
employer 
and 
an employee, 
an employer 
may contribute to the 
employee's individual medical savings account. 
5. 
Limits. 
In each taxable year, the total deposits that 
may be made to an account by or on behalf of an account holder 
are limited in accordance with 26 United States Code, Section 220 
to: 
A. 
Sixty-f i ve 
percent 
of 
the 
annual 
deductible 
for 
individual coverage; and 
B. Seventy-five percent of the annual deductible for family 
coverage. 
6. 
Conformity with federal 
law. 
An 
individual medical 
savings account must meet the requirements of this chapter and 
the 
requirements 
of 
United 
States 
Code, 
Section 
220, 
including, but not limited to, requirements for tax treatment of 
contributions and distributions and for account terminations. 
7. 
State 
tax 
consequences. 
The 
tax 
treatment 
of 
an 
individual medical 
savings 
account is governed by Title 
36, 
chapter 914. 
8. 
Technical 
assistance. 
The 
bureau 
shall 
provide 
technical 
assistance 
wi thin 
existing 
resources 
to 
account 
administrators that offer individual medical savings accounts. 
§2764. 
Rulemaking 
The superintendent may adopt rules as necessary to carry out 
the purposes of this chapter. 
Rules adopted pursuant to this 
chapter 
are 
routine 
technical 
rules 
as 
defined in Title 
5, 
chapter 375, subchapter 2-A. 
§2765. 
Contingent repeal 
This 
chapter 
is 
repealed 
upon 
the 
repeal 
of 
federal 
legislation 
authorizing 
medical 
savings 
accounts, 
United 
States Code, Section 220. 
Sec. 2. 36 MRSA §5122, sub-§l, ~~O and P, as enacted by PL 
2001, c. 700, §4 and affected by §10, are amended to read: 
O. 
The 
amount 
of 
the 
contribution 
to 
a 
qualified 
scholarship organization that is included in the credit base 
of the educational attainment investment tax credit under 
section 52l9-U to the extent that the contribution has been 
used to adjust federal adjusted gross income; aBe 
P. 
The amount of the loan repayment included in the credit 
base of the recruitment credit under section 5219-V to the 
• 
Z 
extent that the repayment has been used to adjust federal 
adjusted gross incomeT; and 
Sec. 3. 36 MRSA §5122, sub-§l, 1rQ is enacted to read: 
O. 
Amounts withdrawn pursuant to section 6601, subsection 4 
by the taxpayer during the taxable year from an individual 
medical savings account established in the taxpayer's name. 
Sec. 4. 36 MRSA §5122, sub-§2, 1r1rR and S, as enacted by PL 
lZ 
ZO 
ZZ 
Z4 
Z6 
Z8 
3Z 
4Z 
ZOOl, c. 714, Pt. AA, §4, are amended to read: 
R. 
For tax years beginning in Z005, Z006 or Z007, an amount 
equal to 1/3 of any amount added back to federal adjusted 
gross income by the taxpayer for the Z003 tax year pursuant 
to subsection 1, paragraph N, except with respect to 3-year 
property, in which case this paragraph does not apply to 
Z006 
or 
Z007 
tax years 
and the amount to be subtracted 
pursuant to this paragraph in the Z005 tax year is an amount 
equal to the amount added back pursuant to subsection 1, 
paragraph N for tax years beginning in Z003; aBS 
S. 
For tax years beginning in Z006, Z007 or Z008, an amount 
equal to 1/3 of any amount added back to federal adjusted 
gross income by the taxpayer for the Z004 tax year pursuant 
to subsection 1, paragraph N, except with respect to 3-year 
property, in which case this paragraph does not apply to 
Z007 
or 
Z008 
tax years 
and the 
amount to be subtracted 
pursuant to this paragraph in the Z006 tax year is in an 
amount equal to the amount added back pursuant to subsection 
1, paragraph N for tax years beginning in Z004T; and 
Sec. 5. 36 MRSA §5122. sub-§2.1rT is enacted to read: 
T. 
Contributions 
or 
deposits 
to 
an 
individual 
medical 
savings account established under chapter 914 subject to the 
following limitations. 
(1) 
The taxpayer may subtract: 
( a) 
The 
amount 
of 
contributions 
made 
by 
the 
taxpayer's employer during the taxable year to the 
taxpayer's individual medical savings account to 
the extent that the employer contributions are 
included in the taxpayer's federal adjusted gross 
income; and 
(b) 
The amount deposited by the taxpayer in the 
account during the taxable year. 
(2) 
The taxpayer's employer may subtract the amount of 
contributions made 
by the employer to 
an individual 
medical savings account established on the taxpayer's 
behalf to the extent that the contributions are not 
deductible under the Code. 
Sec. 6. 36 MRSA §5164, sub-§l, as amended by PL 1999, c. 708, 
§38, is further amended to read: 
1. 
Fiduciary adjustment defined. The fiduciary adjustment 
is the net amount of the modifications described in section 5122, 
including subsection 3 if the estate or trust is a beneficiary of 
another estate or trust, which relates to items of income or 
deduction of an estate or trust. 
Income taxes imposed by this 
State or any other taxing jurisdiction and interest or expenses 
incurred in the production of income exempt from tax under this 
Part deducted in arriving at federal taxable income must be added 
back to the fiduciary adjustment. 
Interest or expenses incurred 
in the production of income taxable under this Part but exempt 
from federal income tax must be subtracted from the fiduciary 
adjustment. 
Interest income earned on 
a 
trust that is established as 
an 
individual medical savings account pursuant to chapter 914 is not 
included 
as 
income 
if 
the 
interest 
income 
is 
received 
on 
obligations of a state, territory or possession of the United 
States 
or 
a 
political 
subdivision of 
a 
state, 
territory or 
possession that is located outside this State, 
For such interest 
income, interest earned by a trust that is established as 
an 
individual medical savings account may be subtracted from the 
adjusted gross income to the extent that the income is included 
in the trust's Maine gross income during the taxable year. 
Sec. 7. 36 MRSA §5204-C is enacted to read: 
§S204-C. 
Nongualified withdrawal from an individual medical 
savings account 
The tax imposed under this Part on any individual as 
a 
result of 
a 
withdrawal 
of 
funds 
from 
an 
individual 
medical 
savings account other than for the payment of eligible medical 
expenses must be increased by an amount equal to 
lOa" 
of the 
amount withdrawn. 
Sec. 8. 36 MRS A §5220, sub-§l, 1rA, as repealed and replaced by 
PL 1987, c. 504, §33, is amended to read: 
A. 
Who is required to file a federal income tax return for 
the taxable year; 
e~ 
Sec. 9. 36 MRSA §5220, sub-§I, 1[B, as amended by PL 1987, c. 
819, §10, is further amended to read: 
B. 
Who, 
pursuant to this Part, 
has 
a 
Maine 
individual 
income tax liability for the taxable yearTL-Q£ 
Sec. 10. 36 MRSA §5220, sub-§I, 1[D is enacted to read: 
D. 
Who is subject to the penalty imposed by section 5204-C. 
Sec. 11. 36 MRSA c. 914 is enacted to read: 
CHAPTER 914 
INDIVIDUAL MEDICAL SAVINGS ACCOUNTS 
§6601. 
Individual medical savings accounts 
1. 
Definitions. 
As 
used 
in this 
chapter, 
unless 
the 
context otherwise indicates, the following terms have the same 
meaning as in Title 24-A, chapter 33-A: 
"account administrator, " 
"account holder," 
"eligible medical 
expenses" 
and "individual 
medical savings account." 
2. 
Deposits; 
deduction. 
An 
amount 
deposited 
into 
an 
individual medical savings account in accordance with Title 24-A, 
section 2763, subsection 4 may be subtracted from taxable income 
of the account holder during the same tax year. 
Funds withdrawn 
pursuant 
to 
subsection 
must 
be 
considered 
income 
for 
the 
purpose of computing adjusted gross income. 
3. 
Withdrawals. 
If an account holder withdraws funds from 
an individual medical savings account for any purpose other than 
for the payment of eligible medical expenses, the withdrawal is 
subject to income tax. 
The account administrator shall withhold 
the amount of income tax payable on any withdrawal under this 
subsection. 
4. 
Contingent repeal. 
This chapter is repealed upon the 
repeal 
of 
federal 
legislation authorizing 
individual 
medical 
savings accounts, 26 United States Code, Section 220. 
SUMMARY 
The bi11 provides enabling legislation for health insurance 
carriers to offer medical savings accounts in conjunction with 
health 
insurance 
for 
policyholders 
in 
the 
individual 
health 
insurance market. 
Medical savings accounts must conform to the 
requirements for the accounts under federal 
law. 
Individuals 
with medical savings accounts are eligible for 
a 
federal tax 
deduction for contributions to the accounts and are not taxed for 
withdrawals used to pay qualified medical expenses. 
The bill 
makes 
contributions 
to, 
interest 
earned 
on 
and 
qualified 
withdrawals from individual medical savings accounts exempt from 
Maine state income tax. 
The bill also requires the Department of 
Professional and Financial Regulation, 
Bureau of Insurance to 
provide 
technical 
assistance 
to 
those 
companies 
that 
offer 
medical savings accounts in conjunction with individual health 
insurance policies within the bureau's existing resources. 
The 
legislation is repealed upon the repeal of federal legislation 
authorizing medical savings accounts.