December 5, 1996
VIA FAX
Mark Iwry
Benefits Tax Counsel
Office of Tax Policy
Department of Treasury
1500 Pennsylvania Ave. NW
Washington, DC 20220
re: MEDICAL SAVINGS ACCOUNTS NOTICE
Dear Mark:
I received your latest copy of the above notice yesterday afternoon and I appreciate the changes which will clarify things for small businesses. When we spoke last week about the above, one of the questions we raised was about uninsured employees of "small employers" being eligible for MSAs. From your questions and answers, it appears that an employee of a "small employer" that does not maintain an individual or family "high deductible health plan" is ineligible to participate in an MSA. (See Q-2, A-2) We felt that these employees should be eligible.
Congress was not specific about what an employer must do to "establish and maintain" a high deductible health plan in order for its employees to be eligible to participate in an MSA. (see 301 c (1)(A)(iii)(1)). For example, if the employer signs the papers to institute a high-deductible health plan, but an employee pays for the plan through payroll deductions for premiums, has the employer "established and maintained" the plan so that the employee will be eligible?
We feel that any ambiguity should be resolved by reading the law and the legislative history to make the pool of eligible employees as deep as possible. Congress specifically states that previously uninsured employees are not to be counted for the purposes of the 750,000 participant cap for the MSA program which we believe shows their intent to try make as many people eligible as possible.
The best way to carry out this intent is to permit the employee to purchase his or her own high deductible health plan in lieu of the "small employer" purchasing it as long as the employer offers the plan to all employees and keeps up with the required reporting and paperwork. This is not a stretch of the applicable construction since it simply provides an employee with the same benefits as a self-employed individual.
This broad construction is very important to the smallest small businesses. Whether a key employee stays with a small business often turns on whether there is any kind of reasonable health care insurance available. An MSA can be used to bring affordable health care coverage within range of all small business employees.
Thank for your concern,
Jere W. Glover
Chief Counsel
Russ Orban
Tax Counsel