SACRAMENTO, Calif. – On July 11, the California Senate unanimously approved AB 434, legislation that will allow state-licensed credit unions to offer health savings accounts, giving them parity with federal credit unions that can already offer the accounts. The bill now requires the signature of Gov. Arnold Schwarzenegger within 10 days, and will be effective January 1, 2006. “Health savings accounts are an increasingly popular way for ordinary Americans to manage the rising costs of health care. We’re grateful to the Legislature and to the bill’s author, Assemblywoman Nicole Parra, for recognizing that state-licensed credit unions should be able to offer this service to their members, just as federally chartered credit unions already can,” said Ron Fong, California Credit Union League director of state government affairs. HSAs are congressionally authorized, tax-sheltered savings accounts similar to an Individual Retirement Account, but earmarked for medical expenses. Taxpayers can deduct contributions to HSAs from their gross income, and the interest and investment earnings generated by the account are also not taxable while in the HSA. Amounts distributed are not taxable as long as they are used to pay for qualified medical expenses. HSA funds can be used to cover health insurance deductibles and co-payments, as well as over-the-counter drugs and long-term care insurance.

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