Tax-Deductible Health Savings and Insurance Premiums
January 30, 2004
In his State of the Union address, President Bush proposed a tax deduction for people who purchase catastrophic (high-deductible) health insurance. Such insurance could be combined with Health Savings Accounts (HSAs), deposits to which are already deductible (even for nonitemizers). This is an important step in the direction of a more sensible health care system, says health economist John C. Goodman, president of the National Center for Policy Analysis.
All 250 million nonelderly Americans may now set up Health Savings Accounts (HSAs) combined with catastrophic, third-party insurance, due to a provision in the recently enacted Medicare prescription drug bill.
- With HSAs, individuals will be able to manage some of their own health care dollars through accounts they own and control.
- They will be able to use these funds to pay expenses not paid by third-party insurance, including the cost of out-of-network doctors and diagnostic tests.
- They will be able to profit from being wise consumers of medical care by having account balances grow tax free and eventually be available for nonmedical purchases.
Unlike other individuals who purchase their own health insurance, the self-employed currently can deduct 100 percent of their premiums, if they itemize. If the policy is catastrophic, they are now able to deduct their HSA deposits, whether or not they itemize. The Bush proposal will treat both options the same under the tax law.
Currently, employees who purchase their own policies cannot deduct the premiums payments. The President's proposal to make the insurance premiums deductible will put third-party insurance and self-insurance on a level playing field in the market for individual and family policies.
Source: John C. Goodman, "Two Cheers for the Bush Health Plan," Brief Analysis No. 465, January 30, 2004, National Center for Policy Analysis.
Browse more articles on Health Issues