Health Savings Accounts/Medical Savings Accounts now protected under state law

In 2018 the Minnesota legislature added an exemption to state law to protect health savings accounts (“HSA”) and medical savings accounts (MSA) up to $25,000.00 from creditors, other than divorce court/child support orders.

The new law, effective August 1, 2018 says that the following is exempt:

Subd. 26.Health savings accounts; medical savings accounts.

(a) All money held in a health savings account, as defined in the Internal Revenue Code of 1986, section 223(d), as amended, up to a present value of $25,000.

(b) All money held in a medical savings account, as defined in the Internal Revenue Code of 1986, section 220(d)(1), as amended, up to a present value of $25,000.

(c) The exemptions in paragraphs (a) and (b) do not apply pursuant to the division of marital assets under section 518.58, a surviving spouse benefit under section 518.581, and a support order under section 518A.53.

So, what is an HSA or an MSA?  To quote from the IRS definitions from Publication 969, which you can access at:  www.irs.gov

A Health Savings Account (HSA) is a tax-exempt trust or custodial account you set up with a qualified HSA trustee to pay or reimburse certain medical expenses you incur. You must be an eligible individual to qualify for an HSA. No permission or authorization from the IRS is necessary to establish an HSA. You set up an HSA with a trustee. A qualified HSA trustee can be a bank, an insurance company, or anyone already approved by the IRS to be a trustee of individual retirement arrangements (IRAs) or Archer MSAs. The HSA can be established through a trustee that is different from your health plan provider. …

To be an eligible individual and qualify for an HSA, you must meet the following requirements. You are covered under a high deductible health plan (HDHP), described later, on the first day of the month. You have no other health coverage except what is permitted under Other health coverage, later. You aren’t enrolled in Medicare. You can’t be claimed as a dependent on someone else's 2017 tax return.

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Medical Savings Accounts an Archer MSA is a tax-exempt trust or custodial account that you set up with a U.S. financial institution (such as a bank or an insurance company) in which you can save money exclusively for future medical expenses.

To qualify for an Archer MSA, you must be either of the following. An employee (or the spouse of an employee) of a small employer (defined later) that maintains a self-only or family HDHP for you (or your spouse). A self-employed person (or the spouse of a self-employed person) who maintains a self-only or family HDHP. You can have no other health or Medicare coverage except what is permitted under Other health coverage, later. You must be an eligible individual on the first day of a given month to get an Archer MSA deduction for that month. If another taxpayer is entitled to claim an exemption for you, you can’t claim a deduction for an Archer MSA contribution. This is true even if the other person doesn’t actually claim your exemption.

I do not see a lot of people with this type of account, but for those who do have one it can be significant, and previously Minnesota law did not protect these accounts.  I am glad that law now protects these assets. This protection is not limited to bankruptcy cases; it is effective to protect these accounts, up to the dollar limit, whether or not you file bankruptcy.

If you have questions about this, or if you have other questions about what assets are protected from the claims of creditors, feel free to set up a mutually convenient time to meet and discuss.  You can reach my office at:  320-252-4473.