In In re Mooney, Ch. 7 Case No. 13-10835, 503 B.R. 916, 2014 Bankr. LEXIS 29 (Bankr. M.D. Ga. January 3, 2014), the issue before the Court was whether a health savings account (“HSA”) is exempt. Judge Walker held that an HSA is not exempt under Georgia state exemptions, even though Georgia has enacted legislation to encourage the establishment of HSAs (O.C.G.A. §33-51-02).  The Debtor argued that her HSA was exempt pursuant to O.C.G.A. §44-13-100(a)(2)(C) & (E), which provides for the exemption of:

(2) The debtor’s right to receive: … (C) A disability, illness, or unemployment benefit; … (E) A payment under a pension, annuity, or similar plan or contract on account of illness … to the extent reasonably necessary for the support of the debtor and any dependent of the debtor[.]

The Court did not agree with the Debtor’s argument that the legislature must have intended on exempting HSAs and that the accounts fall within the exemption for “illness benefit.”

Despite Debtor’s argument that HSAs are clearly exempt, nothing in O.C.G.A. § 44-13-100(a)(2) expressly exempts HSAs. The Georgia Assembly has amended the exemption statute three times since the development of HSAs; none of the amendments included any direct or indirect references to HSAs. By contrast, at least six states–Florida, Mississippi, Oregon, Tennessee, Texas, and Virginia–expressly provide for the exemption of HSAs. Absent such an unequivocal expression of legislative intent, the Court must consider whether HSAs fall within one of the more general categories of property exempted by state law…

Based on the ordinary definitions of illness and benefit, an HSA can be described as a benefit in that it is a “useful aid” or “advantage” for saving for medical expenses. However, that benefit or right to payment is not limited to “unhealthy conditions.” Qualified medical expenses include expenses “for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body.” 26 U.S.C. §§ 213(d)(1)(A), 223(d)(2). Furthermore, the Georgia Supreme Court’s decision in Silliman v. Cassell, 292 Ga. 464, 738 S.E.2d 606 (Ga. 2013), supplies the framework for a narrow definition of payments on account of illness and illness benefits. In Cassell, the court reasoned that the “common feature” of all the plans listed in O.C.G.A. § 44-13-100(a)(2)5 “is that they provide income that substitutes for wages.” Id. at 610…

To determine whether a plan serves as a substitute for wages, the court must consider all relevant factors, including: (1) the nature of the plan or contract; (2) the circumstances surrounding the purchase of the plan or contract; (3) whether contributions to the plan were made over time; (4) the extent of the debtor’s control over the asset; and (5) whether the asset is part of a prebankruptcy planning scheme. 738 S.E.2d at 610-11. In addition, the source of the funding for the plan may be a nondeterminative factor. Id. at 611 n.4…

In this case, nothing about Debtor’s HSA indicates it is intended as a substitute for wages. Congress established HSAs as a tax-favored means of saving for medical expenses in conjunction with a high-deductible health insurance policy. Debtor testified that she opened her HSA to pay for medical expenses and has used it exclusively for that purpose. Debtor opened the account five years prior to filing her bankruptcy petition, she has been employed for the life of her HSA, and she has funded the HSA from her personal checking account. Her ability to take distributions from the HSA is in no way connected to her employment status. In fact, if she were to suffer an unexpected interruption in income, the tax penalties for nonqualified distributions would limit her ability to use the HSA for her support. These factors demonstrate that Debtor’s HSA provides her with a means to plan for and manage her medical expenses, but it does not act as a replacement for her income.

The Court, therefore, sustained the Trustee’s objection to the Debtor’s claimed exemption for the HSA.  Of course, the Debtor could still use her wild card exemption for the account, to the extent it is available.