IRS Expands Deduction for Health Savings Account Contributions by People with Chronic Conditions

In 2003, Congress allowed eligible taxpayers to deduct contributions up to a certain amount to a health savings account (HSA). In order to qualify for the HSA deduction, a taxpayer must be covered by a high-deductible health plan (HDHP). This means that the plan must require the covered individual to pay a rather large amount out-of-pocket before the insurer must contribute. The HDHP is not, however, required to have a high deductible for services deemed “preventive care.” In July 2019, the IRS issued Notice 2019-45, which describes an expanded list of medical services and medications that will be considered preventive care for the purposes of HSA deductions. This is hopefully good news for people who need various preventive medical services.

What Is a Health Savings Account?

Congress created HSA’s in the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. Title XII of the bill, entitled “Tax Incentives for Health and Retirement Security,” adds a new § 223 to the Internal Revenue Code (IRC), codified at 26 U.S.C. § 223. It allows “eligible individuals” to deduct contributions to an HSA, with an annual limit of $2,250 for a health insurance plan with single coverage, or $4,500 for a family plan. Additional contributions are allowed for people who are 55 years old or older. In order to be an “eligible individual,” they must be covered by an HDHP.

What Is a High-Deductible Health Plan?

Section 223(c)(2) of the IRC defines an HDHP as a health insurance plan with an annual deductible of at least $1,000 for a single individual, or $2,000 for a family; and an annual sum of the deductible and out-of-pocket expenses of no more than $5,000 for an individual or $10,000 for a family.

The statute creates a “safe harbor” for plans that do not have a high deductible for “preventive care,” as that term is defined by the Social Security Act (SSA). This means that a person can qualify for the HSA deduction when their insurance provides low-deductible coverage for preventive care, but high-deductible coverage for all other services.

What Is Preventive Care?

The IRC uses the definition provided by § 1861(ddd) of the SSA (codified at 42 U.S.C. § 1395x), which includes:
– An initial medical examination, as described in § 1861(ww)(1);
– Most of the services described in § 1861(ww)(2), including vaccinations, mammograms and other cancer screening, diabetes screening and self-management training, glaucoma screening, cardiovascular blood testing, and abdominal ultrasounds; and
– “Personalized prevention plan services,” defined in § 1861(hhh)(1).

The IRS added more to the list of services considered “preventive care” in Notice 2004-24, including:
– Prenatal care;
– Programs that help people quit smoking;
– Screening for infectious diseases, including hepatitis, tuberculosis, and HIV;
– Screening for mental health conditions and substance abuse;
– Screening for pediatric conditions, including scoliosis; and
– Screening for various musculoskeletal, metabolic, obstetric, hearing, and vision conditions.

What Are the New Rules?

The new IRS notice adds fourteen treatments, devices, and medications to the list of preventive care services. This impacts people diagnosed with diabetes, coronary artery disease or congestive heart failure, heart disease, hypertension, asthma, liver disease and/or bleeding disease, and depression. Newly-covered services include ACE inhibitors, blood pressure monitors, glucometers, statins, and selective serotonin reuptake inhibitors (SSRIs).

If you have questions about taxes in California, the Enterprise Consultants Group’s team of experienced tax advisors can help you understand your rights and options. Please contact us today online or at (800) 575-9284 to discuss your case.

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