Hsa Tax Deductions Work At The State And Federal Level

Last year, the number of people with high-deductible health plans rose to 22 million, according to the Employee Benefit Research Institute.

Almost 10 million had also invested in a health savings account, or HSA, to help them cover health care until their deductible was met. That amounted to an increase of 25 percent for health savings accounts in just a single year, according to a census by America’s Health Insurance Plans.

The Public Need For High-deductible Health Plans Is Growing

With health insurance rate hikes on individual coverage of up to 40 percent, it’s no wonder that more people are switching to high-deductible health plans. The premiums on such plans can be from 30 percent to 40 percent lower than the cost of co-pay plans. That’s a plan that charges about $25 or $35 for doctor office visits and sometimes prescriptions.

Even though $25 to see a doctor sounds inexpensive, co-pay plans can actually cost healthy individuals more than high-deductible plans. When compared to PPO plans where the price of seeing an in-network doctor is, on average, around $65, co-pay plans save patients about $30 or $40 per doctor visit. To break even, patients need to see their doctor at least eight times a year, though.

Now that preventive care, which includes an annual check up and preventive screening exams and procedures, is completely covered by plans purchased after health care reform, people are more likely to maintain their health and require fewer doctor services. Unless you need to see a doctor quite often, maintaining a co-pay plan can be expensive.

Health Savings Accounts Offer More To Those In High Tax Brackets

For those in relatively high tax brackets, a few of the high-deductible health plans also offer another way to save money. Certain of these plans allow you to open a health savings account at a variety of banks or other financial institutions and get significant tax advantages.

High-deductible plans that may be combined with health savings accounts typically have deductibles ranging from $1,200 to $5,950 on individual plans. Deductibles for family plans range from $2,400 to $11,900.

Any money deposited into an HSA up to $3,050 for individuals or $6,150 for families, is considered an “above the line” deduction for federal income tax filing. Above the line indicates that you don’t have to itemize to get the deduction. You can still take the standard deduction.

Almost all states have joined the federal government in not taxing HSA contributions. The most recent state to pass such legislation is Wisconsin. Gov. Scott Walker made such a provision law when he signed his first bill this year.

There is speculation that this new law may encourage employers to offer health savings accounts. That trend has been evident in recent years and it’s well known that high-deductible plans not only cost individuals less than full-coverage insurance, but high-deductible plans are also cheaper for employers to offer workers.


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