Since 2007, adults ages 18 to 64 with employment-based coverage have increasingly chosen High Deductible Health Plans (HDHP), both with and without Health Savings Accounts (HSA), over traditional plans.
In 2017, the number enrolled in HDHPs without an HSA rose to 24.5%, while HDHPs with HSAs rose to 8.9%. Some employers are choosing to only offer HDHPs, helping shift employees away from traditional plans.
Health savings accounts are hot, with nearly two-thirds of respondents to a Plan Sponsor Council of America survey saying they believe that even those without a high deductible health plan should qualify. A benefit often cited by employers and employees alike is that HSAs can be a valuable part of one’s retirement strategy, since healthcare expenses are viewed as one of the largest people face in retirement.
Even though employer and pre-tax contributions to Health Savings Accounts (HSAs) are becoming threatened by the looming Cadillac Tax, after-tax contributions continue to be deductible.
While individuals can deduct unreimbursed medical expenses on Schedule A of their federal tax return, the expenses must exceed 10% of adjusted gross income before they are deductible. Qualifying contributions to an HSA, however, are deducted from gross income to determine adjusted gross income and not reported as medical expenses on Schedule A. As a result, after-tax HSA contributions are not limited by the 10% floor or income phase-outs that impact itemized deductions.