Health Savings Accounts were adopted by federal law in 2003, and allowed in Georgia in 2008.  They have been a tremendous benefit to many families since that time.  A simple explanation of a Health Savings Account (“HSA”), from Judge Wiki, is:

[An HSA] is a tax-advantaged medical savings account available to taxpayers in the United States who are enrolled in a high-deductible health plan… The funds contributed to an account are not subject to federal income tax at the time of deposit…  HSA funds roll over and accumulate year to year if they are not spent. HSAs are owned by the individual, which differentiates them from company-owned Health Reimbursement Arrangements (HRA) that are an alternate tax-deductible source of funds paired with either HDHPs or standard health plans. .. HSA funds may currently be used to pay for qualified medical expenses at any time without federal tax liability or penalty… Withdrawals for non-medical expenses are treated very similarly to those in an individual retirement account (IRA) in that they may provide tax advantages if taken after retirement age, and they incur penalties if taken earlier.

When individuals file for Bankruptcy in Georgia, a question has arisen as to whether the funds in an HSA are exempt from the Trustee and creditors.  In a prior post, we discussed the case of In re Mooney, Ch. 7 Case No. 13-10835, 503 B.R. 916, 2014 Bankr. LEXIS 29 (Bankr. M.D. Ga. January 3, 2014), in which Judge Walker of the Middle District held that HSAs are not exempt.  That case was appealed, affirmed by the District Court, and eventually wound up in the Eleventh Circuit Court of Appeals.  See In re Mooney (“Mooney I”), 812 F.3d 1276 (11th Cir. 2016).  In Mooney I, the Eleventh Circuit certified three questions to the Georgia Supreme Court:

(1) Does a debtor’s health savings account constitute a right to receive a “disability, illness, or unemployment benefit” for the purposes of OCGA § 44-13-100 (a) (2) (C)?
(2) Does a debtor’s health savings account constitute a right to receive a “payment under a pension, annuity, or similar plan or contract” for the purposes of OCGA § 44-13-100 (a) (2) (E)?
(3) Is a debtor’s right to receive a payment from a health savings account [one] “on account of illness [or] disability” for the purposes of OCGA § 44-13-100 (a) (2) (E)?

On November 21, 2016 the Georgia Supreme Court entered an opinion answering the questions.  Mooney v. Webster, No. S16Q0895, 794 S.E.2d 31, (Ga. 2016) (click here for .pdf of opinion).  The Georgia court answered the first two questions in the negative, and did not need to address the third.

As authorized by 11 USC § 522(b)(2), Georgia has opted out of the federal bankruptcy exemptions in favor of exemptions under state law; consequently, for debtors who are residents of Georgia, the applicable exemptions are those set forth in OCGA § 44-13-100(a)…

As a threshold matter, OCGA §44-13-100(a) does not contain any express exemption for HSAs; this is so even though the statutory provision specifies numerous exemptions including those for precisely identified “benefits…”   The General Assembly has had ample opportunity to expressly add HSAs to the lengthy list of exemptions, but has chosen not to do so; in fact, the General Assembly has amended the exemption statute four times since the authorization of HSAs in 2008. This Court is mindful of the long-recognized doctrine of statutory construction, expressio unius est exclusio alterius, which discourages judicial recognition of exceptions not specifically set forth in a legislative enactment when other exceptions are expressly stated.

In answering the first certified question, whether an HSA constitute a right to receive a “disability, illness, or unemployment benefit” for the purposes of OCGA §44-13-100(a)(2)(C), the Georgia Court considered whether the General Assembly “meant what it said and said what it meant”; consequently, the statutory text is to be given its “plain and ordinary meaning,” viewed in the “context in which it appears” and how the exemption statute is read in its “most reasonable and natural way.”

 Even though OCGA §44-13-100(a)(2)(C) sets forth three types of  “benefits,” the narrower question in the present case is whether a HSA is a “benefit” in regard to “illness.” As noted by the Bankruptcy Court, Webster’s Dictionary has defined “benefit” as “something that promotes well-being,” a “useful aid,” “financial help in time of sickness, old age, or unemployment,” or “payment or service provided for under an annuity, pension plan, or insurance policy.” Merriam Webster’s Collegiate Dictionary 106 (10th ed. 1994). Webster’s has defined “illness” as “an unhealthy condition of body or mind [.]” Webster’s at 577. Such definitions are in accord with the plain language of subsection (a)(2)(C), and lead to the reasonable conclusion that the General Assembly did not intend for it to include a HSA… And, as the Bankruptcy Court found, HSAs are not necessarily illness benefits or HSA funds paid on account of illness because HSAs may also be used for “diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body,” which are uses not dependant on the beneficiary being ill.  26 USC § 213(d)(1)(A).  Thus, HSA funds have a much broader purpose that the restricted “benefits” stated in subsection (a)(2)(C).

The Court then addressed the second certified question (and, consequently, the third question) – whether an HSA “constitute a right to receive a ‘payment under a pension, annuity, or similar plan or contract’ for the purposes of OCGA § 44-13-100(a)(2)(E).”

In Silliman v. Cassell, 292 Ga. 464 (738 SE2d 606) (2013) …  this Court determined that the “common feature of all of the plans found to quality for exemption under subsection (a)(2) (E), and indeed for all of the exemptions listed in subsection (a) (2), is that they “relate to income that substitutes for wages”; consequently, we concluded that the pertinent question in regard to exemption is whether the entity in question “provides income as a substitute for wages.” Silliman v. Cassell, supra at 467-468.  Thus, the relevant inquiry becomes whether a HSA, when used for its appropriate purpose as in the case at bar, is intended as a substitute for wages.  And, plainly it is not.  Penalties associated with early withdrawal of the funds are forever applicable, the funds are never taxed if used for qualified healthcare costs, and the funds rollover from year to year without tax penalty.  Indeed, if the HSA funds are used as a substitute for wages rather than to pay for healthcare there are significant tax consequences. This Court concludes, as did the District Court,  that a HSA is not a substitute for wages, but rather is “a place to park wages that, if used for qualified healthcare expenses, allows favorable tax treatment.” Consequently, the exemptions provided in OCGA § 44-13-100(a)(2)(C) and (a)(2)(E) do not apply.

Therefore, under Georgia law, Health Savings Accounts are not exempt in Bankruptcy cases.  Based on this opinion, the Eleventh Circuit adopted the holding of the Georgia Supreme Court in In re Mooney (“Mooney II”), No. 15-11229, — F.3d –, 2017 WL 382663 (11th Cir. January 27, 2017)(click here for .pdf of opinion).

 The Supreme Court of  Georgia’s answers to our certified questions foreclose Mooney’s arguments on appeal.  Under Georgia law, Mooney was not entitled to claim the assets in her HSA as property exempt from the bankruptcy estate.  Accordingly, we affirm.

At this point, it is up to the Georgia legislature to choose to amend the Georgia exemptions to include Health Savings Accounts.

Scott Riddle’s practice focuses on bankruptcy and litigation. Scott has represented Chapter 7 and 11 debtors, creditors, creditor committees, trustees, court-appointed receivers and other interested parties in bankruptcy cases and bankruptcy litigation.  For more information, click here.