1. Employer contributions to an individual medical account which are used to pay for health care expenses of the employee in accordance with this section shall be exempt from state income tax under this chapter, to the extent such contributions are not excluded from gross income under 26 U.S.C. § 105 and 26 U.S.C. § 106 and regulations promulgated thereunder. In order to qualify for such an exemption from taxation under this chapter, such contributions shall be made in accordance with health care coverage arrangements which contain at a minimum the following components:

(1) The employer shall annually determine a contribution level to be expended for coverage of an insured person and any dependents, which shall be in lieu of any standard indemnity or health insurance provided under a health insurance benefit package which is established by the department of commerce and insurance. Such a benefit package may be offered as an individual or group policy or other insurance arrangement by an insurer, health maintenance organization, health services corporation, or as a self-funded employer plan. A percentage of the employer’s designated contribution level as established by rule and regulation of the department of commerce and insurance shall be used by the insurer, health maintenance organization, health services corporation, or as a self-funded employer plan to purchase or provide a policy or plan of major medical health care benefits for the insured person and any dependents. The remainder of the employer’s contribution level not used to provide major medical coverage shall be used to fund an individual medical account. Funds in the account shall be used by the insured person or his dependents, if any, to pay for that portion of bona fide medical and health care expenses not covered by the policy or plan of major medical health insurance coverage, including any deductible, co-payment, or coinsurance requirements established by regulation of the department of commerce and insurance to discourage unnecessary use of health care services. Funds in the individual medical account shall be spent for no other purpose except as otherwise provided by this section;

(2) Any amount in the insured’s individual medical account that is unspent at the end of the year shall remain in the account. The director of the department of commerce and insurance shall by rule and regulation establish a balance for the account which, if exceeded, shall allow the insured to withdraw any moneys in excess of such balance. Any moneys so withdrawn from the account and interest earned on such moneys shall be subject to state income taxation;

(3) The amount in an individual medical account shall not be subject to state income taxation while it remains in the account. Any amount spent from the individual medical account on medical and health care expenses and interest accrued on such amount shall be totally exempt from state income taxation;

(4) The insurer, health maintenance organization, health services corporation, or employer which sponsors or provides health insurance coverage as authorized by this section shall administer the account on behalf of the insured person and any dependents.

2. As used in this section, bona fide medical and health care expenses shall be those medical and health procedures as defined by regulation of the department of commerce and insurance. Such regulations shall be developed in consultation with the department of health and senior services.

3. The director of the department of commerce and insurance shall promulgate such rules and regulations as may be necessary to implement the provisions of this section and section 374.126^*. No rule or portion of a rule promulgated under the authority of this section shall become effective unless it has been promulgated pursuant to the provisions of section 536.024.