H. B. 2056

(By Delegates J. Martin, Petersen, Michael and Nesbitt)


(Introduced January 17, 1995; referred to the

Committee on Government Organization then Finance.)




A BILL to amend and reenact section twelve, article twenty-one, chapter eleven of the code of West Virginia, one thousand nine hundred thirty-one, as amended; to amend and reenact section six, article twenty-four of said chapter; to amend article fifteen, chapter thirty-three by adding thereto a new section, designated section twenty; and to amend article sixteen of said chapter by adding thereto a new section, designated section fifteen, all relating to health care investment accounts; excluding individual, employee and employer deposits to health care investment accounts from adjusted gross income for purposes of personal income tax and from taxable income for purposes of corporation net income tax; permitting establishment of individual health care investment accounts to serve as self-insurance for the payment of medical expenses; authorizing combined plans to defray medical expenses included within deductible provisions of an individual or group insurance plan and therefore not payable under that plan; definitions; ownership of accounts; contributions; trustees; restricting withdrawals from health care investment accounts for purposes other than payment of medical expenses; requiring insurance commissioner to issue regulations for plan standards; authorizing tax commissioner to provide penalties for early withdrawal by legislative rule.

 Be it enacted by the Legislature of West Virginia:
That section fifteen, article twenty-one, chapter eleven of the code of West Virginia, one thousand nine hundred thirty-one, as amended, be amended and reenacted; that section six, article twenty-four of said chapter be amended and reenacted; that article fifteen, chapter thirty-three be amended by adding thereto a new section, designated section twenty; and that article sixteen of said chapter be amended by adding thereto a new section, designated section fifteen, all to read as follows:
CHAPTER 11. TAXATION.

ARTICLE 21. PERSONAL INCOME TAX.

§11-21-12. West Virginia adjusted gross income of resident individual.

(a) General. -- The West Virginia adjusted gross income of a resident individual means his federal adjusted gross income as defined in the laws of the United States for the taxable year with the modifications specified in this section.
(b) Modifications increasing federal adjusted gross income. -- There shall be added to federal adjusted gross income unless already included therein the following items:
(1) Interest income on obligations of any state other than this state or of a political subdivision of any such other state unless created by compact or agreement to which this state is a party;
(2) Interest or dividend income on obligations or securities of any authority, commission or instrumentality of the United States, which the laws of the United States exempt from federal income tax but not from state income taxes;
(3) Income taxes imposed by this state or any other taxing jurisdiction, to the extent deductible in determining federal adjusted gross income and not credited against federal income tax: Provided, That this modification shall not be made for taxable years beginning after the thirty-first day of December, one thousand nine hundred eighty-six;
(4) Interest on indebtedness incurred or continued to purchase or carry obligations or securities the income from which is exempt from tax under this article, to the extent deductible in determining federal adjusted gross income;
(5) Interest on a depository institution tax-exempt savings certificate which is allowed as an exclusion from federal gross income under Section 128 of the Internal Revenue Code, for the federal taxable year;
(6) The amount allowed as a deduction from federal gross income under Section 221 of the Internal Revenue Code by married couples who file a joint federal return for the federal taxable year: Provided, That this modification shall not be made for taxable years beginning after the thirty-first day of December, one thousand nine hundred eighty-six;
(7) The deferral value of certain income that is not recognized for federal tax purposes, which value shall be an amount equal to a percentage of the amount allowed as a deduction in determining federal adjusted gross income pursuant to the accelerated cost recovery system under Section 168 of the Internal Revenue Code for the federal taxable year, with the percentage of the federal deduction to be added as follows with respect to the following recovery property: Three-year property -- no modification; five-year property -- ten percent; ten-year property -- fifteen percent; fifteen-year public utility property -- twenty-five percent; and fifteen-year real property -- thirty- five percent: Provided, That this modification shall not apply to any person whose federal deduction is determined by the use of the straight line method: Provided, however, That this modification shall not be made for taxable years beginning after the thirty-first day of December, one thousand nine hundred eighty-six; and
(8) The amount of a lump sum distribution for which the taxpayer has elected under Section 402(e) of the Internal Revenue Code of 1986, as amended, to be separately taxed for federal income tax purposes.
(c) Modifications reducing federal adjusted gross income. -- There shall be subtracted from federal adjusted gross income to the extent included therein:
(1) Interest income on obligations of the United States and its possessions to the extent includible in gross income for federal income tax purposes;
(2) Interest or dividend income on obligations or securities of any authority, commission or instrumentality of the United States or of the state of West Virginia to the extent includible in gross income for federal income tax purposes but exempt from state income taxes under the laws of the United States or of the state of West Virginia, including federal interest or dividends paid to shareholders of a regulated investment company, under Section 852 of the Internal Revenue Code for taxable years ending after the thirtieth day of June, one thousand nine hundred eighty-seven;
(3) Any gain from the sale or other disposition of property having a higher fair market value on the first day of January, one thousand nine hundred sixty-one, than the adjusted basis at said date for federal income tax purposes: Provided, That the amount of this adjustment is limited to that portion of any such gain which does not exceed the difference between such fair market value and such adjusted basis: Provided, however, That if such gain is considered a long-term capital gain for federal income tax purposes, the modification shall be limited to forty percent of such portion of the gain: Provided further, That this modification shall not be made for taxable years beginning after the thirty-first day of December, one thousand nine hundred eighty-six;
(4) The amount of any refund or credit for overpayment of income taxes imposed by this state, or any other taxing jurisdiction, to the extent properly included in gross income for federal income tax purposes;
(5) Annuities, retirement allowances, returns of contributions and any other benefit received under the West Virginia public employees retirement system, the West Virginia state teachers retirement system and all forms of military retirement, including regular armed forces, reserves and national guard, including any survivorship annuities derived therefrom, to the extent includible in gross income for federal income tax purposes: Provided, That notwithstanding any provisions in this code to the contrary this modification shall be limited to the first two thousand dollars of benefits received under the West Virginia public employees retirement system, the West Virginia state teachers retirement system and all forms of military retirement including regular armed forces, reserves and national guard, including any survivorship annuities derived therefrom, to the extent includible in gross income for federal income tax purposes for taxable years beginning after the thirty-first day of December, one thousand nine hundred eighty-six; and the first two thousand dollars of benefits received under any federal retirement system to which Title 4 U.S.C. §111 applies: Provided, however, That the total modification under this paragraph shall not exceed two thousand dollars per person receiving such retirement benefits and this limitation shall apply to all returns or amended returns filed after the last day of December, one thousand nine hundred eighty-eight;
(6) Retirement income received in the form of pensions and annuities after the thirty-first day of December, one thousand nine hundred seventy-nine, under any West Virginia police, West Virginia firemen's retirement system or the West Virginia department of public safety death, disability and retirement fund, including any survivorship annuities derived therefrom, to the extent includible in gross income for federal income tax purposes;
(7) Federal adjusted gross income in the amount of eight thousand dollars received from any source after the thirty-first day of December, one thousand nine hundred eighty-six, by any person who has attained the age of sixty-five on or before the last day of the taxable year, or by any person certified by proper authority as permanently and totally disabled, regardless of age, on or before the last day of the taxable year, to the extent includible in federal adjusted gross income for federal tax purposes: Provided, That if a person has a medical certification from a prior year and he is still permanently and totally disabled, a copy of the original certificate is acceptable as proof of disability. A copy of the form filed for the federal disability income tax exclusion is acceptable: Provided, however, That:
(i) Where the total modification under subdivisions (1), (2), (5) and (6) of this subsection is eight thousand dollars per person or more, no deduction shall be allowed under this subdivision; and
(ii) Where the total modification under subdivisions (1), (2), (5) and (6) of this subsection is less than eight thousand dollars per person, the total modification allowed under this subdivision for all gross income received by such person shall be limited to the difference between eight thousand dollars and the sum of modifications under such subdivisions;
(8) Federal adjusted gross income in the amount of eight thousand dollars received from any source after the thirty-first day of December, one thousand nine hundred eighty-six, by the surviving spouse of any person who had attained the age of sixty- five or who had been certified as permanently and totally disabled, to the extent includible in federal adjusted gross income for federal tax purposes: Provided, That:
(i) Where the total modification under subdivisions (1), (2), (5), (6) and (7) of this subsection is eight thousand dollars or more, no deduction shall be allowed under this subdivision; and
(ii) Where the total modification under subdivisions (1), (2), (5), (6) and (7) of this subsection is less than eight thousand dollars per person, the total modification allowed under this subdivision for all gross income received by such person shall be limited to the difference between eight thousand dollars and the sum of such subdivisions;
(9) Any pay or allowances received, after the thirty-first day of December, one thousand nine hundred seventy-nine, by West Virginia residents who have not attained the age of sixty-five, as compensation for active service in the armed forces of the United States: Provided, That such deduction shall be limited to an amount not to exceed four thousand dollars: Provided, however, That this modification shall not be made for taxable years beginning after the thirty-first day of December, one thousand nine hundred eighty-six;
(10) Gross income to the extent included in federal adjusted gross income under Section 86 of the Internal Revenue Code for federal income tax purposes: Provided, That this modification shall not be made for taxable years beginning after the thirty- first day of December, one thousand nine hundred eighty-six;
(11) The amount of any lottery prize awarded by the West Virginia state lottery commission, to the extent properly included in gross income for federal income tax purposes: Provided, That for taxable years beginning after the thirty first day of December, one thousand nine hundred ninety-two, this modification shall not be made for lottery prizes awarded by the West Virginia state lottery commission;
(12) Individual, employee and employer contributions and interest accruing to health care investment accounts established pursuant to section twenty, article fifteen or section fifteen, article sixteen, chapter thirty-three of this code, to the extent includible in federal adjusted gross income for federal tax purposes: Provided, That the amount subtracted pursuant to this subsection for any one taxable year may not exceed two thousand dollars; and
(12)(13) Any other income which this state is prohibited from taxing under the laws of the United States.
(d) Modification for West Virginia fiduciary adjustment. -- There shall be added to or subtracted from federal adjusted gross income, as the case may be, the taxpayer's share, as beneficiary of an estate or trust, of the West Virginia fiduciary adjustment determined under section nineteen of this article.
(e) Partners and S corporation shareholders. -- The amounts of modifications required to be made under this section by a partner or an S corporation shareholder, which relate to items of income, gain, loss or deduction of a partnership or an S corporation, shall be determined under section seventeen of this article.
(f) Husband and wife. -- If husband and wife determine their federal income tax on a joint return but determine their West Virginia income taxes separately, they shall determine their West Virginia adjusted gross incomes separately as if their federal adjusted gross incomes had been determined separately.
ARTICLE 24. CORPORATION NET INCOME TAX.

§11-24-6. Adjustments in determining West Virginia taxable income.

(a) General. -- In determining West Virginia taxable income of a corporation, its taxable income as defined for federal income tax purposes shall be adjusted and determined before the apportionment provided by section seven of this article, by the items specified in this section.
(b) Adjustments increasing federal taxable income. -- There shall be added to federal taxable income, unless already included in the computation of federal taxable income, the following items:
(1) Interest or dividends on obligations or securities of any state or of a political subdivision or authority thereof;
(2) Interest or dividends (less related expenses to the extent not deducted in determining federal taxable income) on obligations or securities of any authority, commission or instrumentality of the United States which the laws of the United States exempt from federal income tax but not from state income taxes;
(3) Income taxes and other taxes, including franchise and excise taxes, which are based on, measured by, or computed with reference to net income, imposed by this state or any other taxing jurisdiction, to the extent deducted in determining federal taxable income;
(4) The amount of unrelated business taxable income as defined by Section 512 of the Internal Revenue Code of 1986, as amended, of a corporation which by reason of its purposes is generally exempt from federal income taxes; and
(5) The amount of any net operating loss deduction taken for federal income tax purposes under Section 172 of the Internal Revenue Code of 1986, as amended.
(c) Adjustments decreasing federal taxable income. -- There shall be subtracted from federal taxable income to the extent included therein:
(1) Any gain from the sale or other disposition of property having a higher fair market value on the first day of July, one thousand nine hundred sixty-seven, than the adjusted basis at said date for federal income tax purposes: Provided, That the amount of this adjustment is limited to that portion of any such gain which does not exceed the difference between such fair market value and such adjusted basis;
(2) The amount of any refund or credit for overpayment of income taxes and other taxes, including franchise and excise taxes, which are based on, measured by, or computed with reference to net income, imposed by this state or any other taxing jurisdiction, to the extent properly included in gross income for federal income tax purposes;
(3) The amount added to federal taxable income due to the elimination of the reserve method for computation of the bad debt deduction;
(4) The full amount of interest expense actually disallowed in determining federal taxable income which was incurred or continued to purchase or carry obligations or securities of any state or of any political subdivision thereof;
(5) The amount required to be added to federal taxable income as a dividend received from a foreign (non-United States) corporation under Section 78 of the Internal Revenue Code of 1986, as amended, by a corporation electing to take the foreign tax credit for federal income tax purposes;
(6) The amount of salary expenses disallowed as a deduction for federal income tax purposes due to claiming the federal jobs credit under Section 51 of the Internal Revenue Code of 1986, as amended;
(7) The amount included in federal adjusted gross income by the operation of Section 951 of the Internal Revenue Code of 1986, as amended; and
(8) Employer contributions to health care investment accounts established pursuant to section fifteen, article sixteen, chapter thirty-three of this code to the extent included in federal adjusted gross income for federal income tax purposes: Provided, That the amount subtracted pursuant to this subsection for any one taxable year may not exceed the maximum amount that would have been deductible from the corporation's federal adjusted gross income for federal income tax purposes if the aggregate amount of the corporation's contributions to individual health care investment accounts established under section fifteen, article sixteen, chapter thirty-three of this code had been contributed to a qualified plan as defined under the Employee Retirement Income Security Act of 1974, as amended; and
(8)(9) Any amount included in federal adjusted gross income which is foreign source income. Foreign source income includes:
(A) Interest and dividends, other than those derived from sources within the United States;
(B) Rents, royalties, license and technical fees from property located or services performed without the United States or from any interest in such property, including rents, royalties or fees for the use of or the privilege of using without the United States any patents, copyrights, secret process and formulas, good will, trademarks, trade brands, franchises and other like properties; and
(C) Gains, profits or other income from the sale of intangible or real property located without the United States.
In determining the source of "foreign source income", the provisions of Sections 861, 862 and 863 of the Internal Revenue Code of 1986, as amended, shall be applied.
(d) Net operating loss deduction. -- Except as otherwise provided in this subsection, there shall be allowed as a deduction for the taxable year an amount equal to the aggregate of: (1) The West Virginia net operating loss carryovers to such year; plus (2) the net operating loss carrybacks to such year: Provided, That no more than three hundred thousand dollars of net operating loss from any taxable year beginning after the thirty- first day of December, one thousand nine hundred ninety-two, may be carried back to any previous taxable year. For purposes of this subsection, the term "West Virginia net operating loss deduction" means the deduction allowed by this subsection, determined in accordance with Section 172 of the Internal Revenue Code of 1986, as amended.
(1) Special rules. --
(A) When the corporation further adjusts its adjusted federal taxable income under section seven of this article, the West Virginia net operating loss deduction allowed by this subsection shall be deducted after the section seven adjustments are made;
(B) The tax commissioner shall prescribe such transition regulations as he deems necessary for fair and equitable administration of this subsection as amended by this act.
(2) Effective date. -- The provisions of this subsection, as amended by chapter one hundred nineteen, acts of the Legislature, one thousand nine hundred eighty-eight, shall apply to all taxable years ending after the thirtieth day of June, one thousand nine hundred eighty-eight; and to all loss carryovers from taxable years ending on or before said thirtieth day of June.
(e) Special adjustments for expenditures for water and air pollution control facilities. --
(1) If the taxpayer so elects under subdivision (2) of this subsection, there shall be:
(A) Subtracted from federal taxable income the total of the amounts paid or incurred during the taxable year for the acquisition, construction or development within this state of water pollution control facilities or air pollution control facilities as defined in Section 169 of the Internal Revenue Code; and
(B) Added to federal taxable income the total of the amounts of any allowances for depreciation and amortization of such water pollution control facilities or air pollution control facilities, as so defined, to the extent deductible in determining federal taxable income.
(2) The election referred to in subdivision (1) of this subsection shall be made in the return filed within the time prescribed by law (including extensions thereof) for the taxable year in which such amounts were paid or incurred. Such election shall be made in such manner, and the scope of application of such election shall be defined, as the tax commissioner may by regulations prescribe, and shall be irrevocable when made as to all amounts paid or incurred for any particular water pollution control facility or air pollution control facility.
(3) Notwithstanding any other provisions of this subsection or of section seven to the contrary, if the taxpayer's federal taxable income is subject to allocation and apportionment under section seven, the adjustments prescribed in paragraphs (A) and (B), subdivision (1) of this subsection shall (instead of being made to the taxpayer's federal taxable income before allocation and apportionment thereof as provided in section seven) be made to the portion of the taxpayer's net income, computed without regard to such adjustments, allocated and apportioned to this state in accordance with section seven.
(f) Allowance for certain government obligations and obligations secured by residential property. -- The West Virginia taxable income of a taxpayer subject to this article as adjusted in accordance with subsections (b), (c), (d) and (e) of this section shall be further adjusted by multiplying such taxable income after such adjustment by said subsections by a fraction equal to one minus a fraction:
(1) The numerator of which is the sum of the average of the monthly beginning and ending account balances during the taxable year (account balances to be determined at cost in the same manner that such obligations, investments and loans are reported on Schedule L of the Federal Form 1120) of the following:
(A) Obligations or securities of the United States, or of any agency, authority, commission or instrumentality of the United States and any other corporation or entity created under the authority of the United States Congress for the purpose of implementing or furthering an objective of national policy;
(B) Obligations or securities of this state and any political subdivision or authority thereof;
(C) Investments or loans primarily secured by mortgages, or deeds of trust, on residential property located in this state and occupied by nontransients; and
(D) Loans primarily secured by a lien or security agreement on residential property in the form of a mobile home, modular home or double-wide, located in this state and occupied by nontransients.
(2) The denominator of which is the average of the monthly beginning and ending account balances of the total assets of the taxpayer which are shown on Schedule L of Federal Form 1120, which are filed by the taxpayer with the Internal Revenue Service.
CHAPTER 33. INSURANCE.

ARTICLE 15. ACCIDENT AND SICKNESS INSURANCE.

§33-15-20. Individual health care investment accounts; definitions; ownership; trustees; regulations.

(a) Any individual resident of this state may establish a health care investment account to serve as self-insurance for the payment of medical expenses. As used in this section "individual health care investment account" means a trust for the payment of medical expenses created or organized for the exclusive benefit of an individual, his or her children and dependents, and his or her beneficiaries: Provided, That an individual establishing a health care investment account may designate a percentage of such account that may be withdrawn by the individual if not needed for medical expenses of the individual, his or her children or other dependents and his or her beneficiaries: Provided, however, That any amount remaining in a health care investment account on the earlier of the date of retirement, at the age of fifty-nine and one-half years or more, of the individual who established the account, or the date of death of such individual, may be withdrawn by such individual or by his or her personal representative for a purpose other than the payment of medical expenses: Provided further, That any withdrawal for a purpose other than to pay medical expenses as provided in this section shall be added to the federal adjusted gross income of the payee or distributee for purposes of calculating West Virginia adjusted gross income: And provided further, That no withdrawal pursuant to this subsection shall be subject to the additional twenty percent tax as provided in subsection (d) of this section. "Medical expenses" means amounts paid for services for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body, which expenses may be included in calculating the federal deduction for medical and dental expenses for federal income tax purposes; for insurance premiums for combined plans issued pursuant to this section; but excluding expenses for cosmetic surgery as defined in Section 213 of the Internal Revenue Code. Funds in an individual health care investment account may not be used for payment of medical expenses which any third-party payor is obligated to pay, except for expenses of a medicaid-eligible individual covered under the state's medicaid program. The interest of an individual in a health care investment account established for his or her benefit pursuant to this section shall be nonforfeitable.
(b) The trustee for an individual health care investment account shall be a bank or other entity qualified as a trustee of individual retirement accounts under Section 408 of the Internal Revenue Code. An insurer so qualified may act as trustee. The assets of the trust shall not be commingled with other property except in a common trust fund or common investment fund. A trustee who is an insurer may hold the assets of individuals insured under individual accident and sickness plans in a common fund for the account of all individuals who have an interest in the trust, if there is a separate accounting for the interest of each individual or member. In the case of an insurer who acts as trustee, account funds held by the trustee are subject to the protections afforded by article twenty-six-a of this chapter.
(c) Any insurer issuing accident and sickness policies in this state in accordance with the provisions of this article may offer a benefit plan including deductibles or copayments combined with individual self-insurance through the establishment of individual health care investment accounts. A benefit plan established pursuant to this subsection shall provide that medical expenses included within deductible or copayment provisions of the accident and sickness policy for the individual or for his or her covered dependents and therefore not payable under such policy be paid by the trustee, either directly or as reimbursement to an individual who has previously paid such medical expenses, from the individual health care investment account. A benefit plan may limit payment of medical expenses within the plan deductible from the health care investment account to expenses which are covered services under the policy.
(d) The insurance commissioner shall issue reasonable regulations to establish specific standards for individual health care investment accounts and for plans in which a policy of insurance is combined with self-insurance under an individual health care investment account. Such standards shall be in addition to and in accordance with the applicable laws of this state and may cover, but shall not be limited to:
(1) Definitions of terms;
(2) An annual contribution minimum for individual health care investment accounts;
(3) An annual contribution maximum for individual health care investment accounts;
(4) Limitations upon an individual's access to or use of individual health care investment account funds and circumstances under which funds in the account may be disbursed: Provided, That if, during any taxable year, the beneficial owner of an individual health care investment account borrows any money under or by use of such account, the account ceases to be an individual health care investment account as of the first day of such taxable year: Provided, however, That any amount paid or distributed out of a health care investment account for any purpose other than to defray medical expenses as provided in this section shall be added to the federal adjusted gross income of the payee or distributee for purposes of calculating West Virginia adjusted gross income: Provided further, That the payee's or distributee's tax under this article for the taxable year in which the amount is received shall be increased by an amount equal to twenty percent of the portion of such payment or distribution that is includible in the payee's or distributee's federal adjusted gross income;
(5) Circumstances under which a combined benefit plan offered through an insurer may permit reduced contributions to the individual health care investment account, which circumstances may include the accruing of a specified account balance; and
(6) Provisions relating to reporting payments for the benefit of an individual from an individual health care investment account for medical expenses to an insurer offering a combined benefit plan.
(e) The tax commissioner is authorized to establish pursuant to rules promulgated pursuant to chapter twenty-nine-a of this code penalties for early or unauthorized withdrawals from individual health care investment accounts, which penalties may not exceed federal penalties for early or unauthorized withdrawals from individual retirement accounts under the Internal Revenue Code.
ARTICLE 16. GROUP ACCIDENT AND SICKNESS INSURANCE.

§33-16-15. Individual health care investment accounts; definitions; ownership; contributions; trustees; regulations.

(a) Any insurer issuing group accident and sickness policies in this state, the public employees insurance agency and any employer offering a health benefit plan pursuant to the Employee Retirement Income Security Act of 1974, as amended may offer a benefit plan including deductibles or copayments combined with employee self-insurance through the establishment of individual health care investment accounts. As used in this section "individual health care investment account" means a trust for the payment of medical expenses created or organized for the exclusive benefit of an individual, his or her dependents covered under a group accident and sickness policy, and his or her beneficiaries: Provided, That an employee establishing a health care investment account, or for whom a health care investment account is established by an employer, may designate a percentage of the employee's contributions, if any, to such account that may be withdrawn by the employee if not needed for medical expenses of the employee, his or her children or other dependents and his or her beneficiaries: Provided, however, That any amount remaining in a health care investment account on the earlier of the date of retirement, at the age of fifty-nine and one-half years or more, of the employee or the date of death of such employee, may be withdrawn by such employee or by his or her personal representative for a purpose other than the payment of medical expenses: Provided further, That any withdrawal for a purpose other than to pay medical expenses as provided in this section shall be added to the federal adjusted gross income of the payee or distributee: And provided further, That no withdrawal pursuant to this subsection shall be subject to the additional twenty percent tax as provided in subsection (d) of this section. "Medical expenses" means amounts paid for services for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body, which expenses may be included in calculating the federal deduction for medical and dental expenses for federal income tax purposes; for insurance premiums for combined plans issued pursuant to this section; but excluding expenses for cosmetic surgery as defined in Section 213 of the Internal Revenue Code. Funds in an individual health care investment account may not be used for payment of medical expenses which any third-party payor is obligated to pay, except for medical expenses of a medicaid-eligible individual covered under the state's medicaid program. A benefit plan established pursuant to this section shall provide that medical expenses included within deductible or copayment provisions of the group accident and sickness policy and therefore not payable under the group policy for the employee or for his or her covered dependents be paid by the trustee, either directly or as reimbursement to an employee who has previously paid such medical expenses, from the individual health care investment account. A benefit plan may limit payment of medical expenses within the group plan deductible from the health care investment account to expenses which are covered services under the group policy.
(b) The interest of an employee in a health care investment account established for his or her benefit pursuant to this section shall be nonforfeitable.
(c) The trustee for an individual health care investment account shall be a bank or other entity qualified as a trustee of individual retirement accounts under Section 408 of the Internal Revenue Code. An insurer so qualified may act as trustee. The assets of the trust shall not be commingled with other property except in a common trust fund or common investment fund. The trustee may hold the assets of employees insured under a group accident and sickness plan in a common fund for the account of all individuals who have an interest in the trust, if there is a separate accounting for the interest of each employee or member. In the case of an insurer who acts as trustee, account funds held by the trustee are subject to the protections afforded by article twenty-six-a of this chapter.
(d) The insurance commissioner shall issue reasonable regulations to establish specific standards for plans in which a group policy is combined with self-insurance under an individual health care investment account. Such standards shall be in addition to and in accordance with the applicable laws of this state and may cover, but shall not be limited to:
(1) Definitions of terms;
(2) An annual contribution minimum for individual health care investment accounts;
(3) An annual contribution maximum for individual health care investment accounts;
(4) Limitations which a plan may impose upon an employee's access to or use of individual health care investment account funds and circumstances under which funds in the account may be disbursed: Provided, That if, during any taxable year, the beneficial owner of an individual health care investment account borrows any money under or by use of such account, the account ceases to be an individual health care investment account as of the first day of such taxable year: Provided, however, That any amount paid or distributed out of a health care investment account for any purpose other than to defray medical expenses as provided in this section shall be added to the federal adjusted gross income of the payee or distributee for purposes of calculating West Virginia adjusted gross income: Provided further, That the payee's or distributee's tax under this article for the taxable year in which the amount is received shall be increased by an amount equal to twenty percent of the portion of such payment or distribution that is includible in the payee's or distributee's federal adjusted gross income;
(5) Circumstances under which a plan may permit reduced contributions to the individual health care investment account, which circumstances may include the accruing of a specified account balance; and
(6) Provisions relating to reporting payments for the benefit of an employee from an individual health care investment account for medical expenses to the group policy insurer.
(e) The tax commissioner is authorized to establish pursuant to legislative rules promulgated pursuant to chapter twenty-nine-a of this code penalties for early or unauthorized withdrawals from individual health care investment accounts, which penalties may not exceed federal penalties for early or unauthorized withdrawals from individual retirement accounts under the Internal Revenue Code.
NOTE: The purpose of this bill is to permit the creation of health care investment accounts to serve as self-insurance for the payment of medical expenses. Amounts contributed to health care investment accounts are deducted from adjusted gross income for purposes of determining West Virginia adjusted gross income for personal income tax and corporation net income tax.

§§ 33-15-20 and 33-16-15 are new; therefore, strike-throughs and underlining have been omitted.

Strike-throughs indicate language that would be stricken from the present law, and underscoring indicates new language that would be added.