A new standard deduction for health insurance would be available to any taxpayer with qualified health insurance, whether obtained through an employer or directly from an insurer. The amount of the standard deduction would be the same regardless of the actual cost of the coverage. With certain exceptions, the current tax exclusion for employer paid coverage would no longer be available. The self-employed premium deduction would be repealed. Current law relating to Health Savings Accounts (HSAs) and HSA-qualified high deductible health plans would be modified to encourage more people to change to such plans.
Overview
Would make a number of changes to current law to encourage employers and employees to change to HSA-eligible insurance coverage.
Eligibility for MSAs
No change.
Contributions to MSAs and distributions from HSAs
Would permit HSA funds to be used to pay medical expenses that are incurred on or after the first day of eligibility for the HSA, even if the HSA has not yet been established. (The HSA would have to be established by the time the taxpayer filed his or her return). (Current law prohibits the use of HSA funds to pay for medical expenses that are incurred prior to the establishment of the HSA.)
Who can make contributions
Employers would be permitted to contribute more to the HSAs of employees who have a chronic illness or who have a spouse or dependent with a chronic illness. (Under current law, employers generally must contribute the same amount or percentage of the High Deductible Health Plan (HDHP) deductible to all employees who are eligible individuals with comparable coverage.) Provides that in the case where both spouses are eligible for HSAs, both would be permitted to contribute the catch-up contribution to a single HSA owned by one spouse. Such catch-up contributions to HSAs (an additional $800 in 2007, $900 in 2008, and $1,000 thereafter) are available to individuals ages 55 through 64. (Under current law, one spouse is not permitted to have his or her catch up contribution made to the HSA owned by the other spouse.)
Permits contributions to HSAs to be made by individuals covered by a Flexible Spending Arrangement (FSA) or Health Reimbursement Arrangement (HRA) but would offset the maximum allowable HSA contribution by the level of FSA or HRA coverage. (Under current law, FSA or HRA participation generally disqualifies individuals from contributions to HSAs.)
MSA-qualified high deductible health plans (HDHPs)
Health insurance plans would be HSA-qualified if they met all the existing requirements of an HDHP except that, instead of satisfying the minimum deductible amounts ($1,100 for self-only coverage and $2,200 for family coverage in 2007), they have at least a 50% coinsurance requirement and a minimum out-of-pocket exposure that, under guidelines to be specified by the Secretary of Treasury, would result in the same (or lower) premium as coverage under an HDHP under the current requirements. (The current law limits on out-of-pocket liability is $5,500 for self-only coverage and $11,000 for family coverage in 2007). In addition, an HDHP for a family would be permitted to require each individual in the family to reach a minimum deductible before coverage begins. (Under current law, a plan with such a deductible design would not meet the requirements for an HSA-qualified HDHP.)
Other MSA provisions
None.
Effective date
Effective for tax years beginning after December 31, 2007
Overview
See HSAs above.
Effective date
Effective for tax years beginning after December 31, 2007.
Overview
No provision.
Eligibility
No provision.
Contribution limits
No provision.
Deductible amounts and annual out-of-pocket limits
No provision.
Who can make contributions
No provision.
Qualified expenses
No provision.
Other provisions
No provision.
Effective date
No provision.
Overview
The current tax exclusion for employer-paid health coverage would no longer be available. Instead, a new standard deduction for health insurance would be available to any taxpayer with qualified health insurance, whether provided through an employer or purchased directly from an insurer.
Target population(s)
Uninsured individuals under age 65. The proposed changes to the tax treatment of employer-sponsored health insurance would affect a much broader population.
Eligibility
Individuals who file federal income taxes and have qualified health insurance. Individuals (and their dependents) enrolled in Medicare, Medicaid or SCHIP would not qualify for the SDHI.
Annual amount of credit/deduction
A standard deduction for health insurance (SDHI) of $15,000 for family coverage and $7,500 for single coverage) would be provided to all families who obtain health insurance that meet minimum requirements. The health insurance could be obtained through an employer or other group plan or directly from an insurer. The $15,000 or $7,500 SDHI would be available regardless of how much a family or individual actually spent on health insurance. The SDHI would apply for both purposes of calculating income taxes and payroll taxes. Individuals would be eligible to claim the SDHI if they claim the Health Coverage Tax Credit or use-tax preferred distributions from HSAs or Medical Savings Accounts to pay for insurance premiums.
Employers would be required to report the value of health insurance coverage to their employees on their annual Form W-2 and such amounts would be subject to withholding and employment taxes. Employers would exclude a pro-rated portion of the SDHI for employment tax purposes for their employees who have qualifying coverage. Tax withholding amounts could be adjusted to reflect the SDHI.
Employers would continue to be able to deduct from their taxes as a business expense any health insurance expenses paid on behalf of their employees.
Qualified health insurance coverage
To be qualified for the SDHI, the insurance coverage would have to provide for: (1) a limit on the amount an individual or family could be required to pay out-of-pocket for covered expenses that is not higher than the amounts allowable for HSAs (e.g., for 2007, those limits are $5,500 for single coverage and $11,000 for family coverage); (2) a "reasonable" annual and/or lifetime benefit maximum; (3) coverage for inpatient and outpatient care, emergency benefits, and physician care; and (4) guaranteed renewability. These federal requirements would not preempt state mandated benefit laws. Long-term care insurance and Medicare would not qualify for the standard deduction.
Effective date
Effective for tax years after December 31, 2008.
Provide for 100% deductibility
The self-employed premium deduction would be repealed.
Other
Proposes an Affordable Choices Initiative through which the federal government would provide grants to eligible states to make private health insurance available and provide help to Americans who cannot afford insurance or who have persistently high medical expenses. Portions of existing Medicare and federal Medicaid funding that goes to disproportionate share hospitals would be redirected to finance the Initiative's grants to the states.