Are High Deductible Health Plan Premiums Tax Deductible?

For many Americans, health insurance is one of the significant monthly expenses. If they opt for higher deductible insurance, they wonder “are high deductible health plan premiums tax deductible?”

Let’s find out here.

Are High Deductible Health Plan Premiums Tax Deductible?

If you obtain a high deductible plan, the premiums are not tax-deductible. You can only deduct premiums on your taxes if you itemize the deductions, instead of the standard deduction.

Furthermore, you pay the premiums directly, instead of paying them through your employer. And if your healthcare expenses cost more than 7.5% of your yearly income, then you can deduct it.

Since you have a high deductible plan, you can contribute to a health savings account or HSA. The savings account can be established through your employer or you can set it up on your own.

The premium for the high deductible plan is not tax-deductible. However, your contribution to the HSA is tax-deductible with a limit of $3,600 if it is an individual plan. If it covers one family member, the limit is $7,2000.

If you are funding your HSA, you must monitor the contributions you make per year and deduct it on your tax return.

On the other hand, if you’re self-employed, you can deduct the premiums you pay for your HDHP.

But if you obtain your high deductible plan through your employer, the premiums are already on a pre-tax basis. Thus, you can’t deduct it on your tax return because the money used to pay them wasn’t taxed.

Read: How can health insurance plans for a family protect you?

What Insurance Premiums are Tax Deductible?

In some cases, the premiums are deductible on federal taxes because they are monthly payments. If you are paying for your medical insurance, you can deduct the premium from your taxes.

To know whether or not your premiums are tax-deductible, you need to determine your income and how you obtain your insurance.

As mentioned, if it’s from an employer, it’s not tax-deductible.

If you have COBRA insurance, the premiums are tax-deductible because you’re paying them yourself.

If you obtain your health insurance plan through marketplace insurance, the premiums are deducible but as a medical expense. However, if you are qualified for a spouse’s employer-based health plan but you decline it, your personal insurance premiums are not tax deductible.

On the other hand, if you have Medicare Part B, C, or D and Medigap, the premiums for these plans are tax-deductible.

Is the Higher the Premium the Higher the Deductible?

When your premium is high, the deductible is low. This is the reason a high premium plan is ideal for those who need frequent medical care. However, if you’re perfectly healthy and you don’t need medical care frequently, a high deductible plan is a better option.

Some people choose to have a small premium without determining their medical needs. They don’t want to pay more upfront.

This type of plan will only make your medical expenses less predictable. There’s no way of knowing when you’ll receive a lot of medical bills.

However, if you wish to be more secure financially, then opting for a plan with a higher premium can be ideal so your deductibles are lower. In that case, when they need medical care, they don’t have to wonder where they find a large sum of money to help with their healthcare cost.

Choosing a higher premium and lower deductible will make your healthcare cost more deductible.

Read: Health insurance plans without a waiting period

What are the Main Advantages of a High Deductible Health Plan?

There are several benefits of having HDHP. As mentioned, you’ll be paying less for your monthly premium.

It can help you save money because you’ll be using your plan for preventive care, instead of complicated procedures.

You can also contribute to a health savings account. As mentioned, HSA offers tax advantages. You can use the money to pay for qualified expenses that your plan can’t pay for.

Since the money you deposit into HSA is tax-free, you can cut the cost of your high deductible.

But this plan is costly. If you need medical care, you will have to pay more out of your own money. You have to pay a huge amount before your policy pays for you.

As a result, it can cause a dent in your pocket, if you have unexpected health insures.

What is the Deductible for a High Deductible Health Plan?

The IRS considers a plan to be a high deductible health plan if its deductible is at least $1,400 for an individual plan or $2,800 for a family plan. Then, the annual out-of-pocket expenses must not be over $7,050 for an individual plan.

Read: Is a master check up covered by health insurance?

Is a High Deductible Plan for You?

This type of plan is not for everyone. As mentioned, this is only ideal if you are perfectly healthy and you don’t need medical care frequently.

Before you even consider it, make sure to determine your medical needs. If you think that you won’t be needing medical care anytime soon, then having a high deductible plan might be the right choice.

If you don’t go to your doctor every year, this plan can help you save $1,200 in premiums.

However, you can’t predict when you’ll need medical care. In that case, you should base your decision on your overall health.

If you go to your doctor often, it makes sense to obtain PPO. If you see a doctor for emergencies, then having a high deductible plan might be cheaper.

If you are still wondering whether you need HDHP or not, you should know how often you go to your doctor.

HDHP is ideal if you don’t have chronic health conditions. And if you have planned medical expenses coming, HDHP isn’t a good idea.

You should also remember that the right answer could change. When it’s time for your to change your policy, you should re-assess your health. You may switch plans if you think that it will be more affordable.

It’s not a good idea to base your decision on cost. You should also consider your current health.