Continuation of Research on Consumer Directed Health Plans: HSA Simulation Model Refinement . IV. 2006 State of the Union Simulations

01/21/2007

We simulated the proposals outlined in the President's 2006 State of the Union (SOTU) address and explained in the 2006 Blue Book.  As we understand that proposal, it has three related parts:

  • 1. Tax treatment of HDHP premiums: Individuals covered by eligible HDHP would be allowed an "above-the-line" deduction in determining their adjusted gross income.  In order to further level the playing field between individual health insurance and ESI, individuals covered by eligible HDHP would receive a refundable tax credit equal to the lesser of: (1) 15.3 % of the HDHP premium or (2) 15.3% of their wages subject to employment taxes.13
  • 2. Tax treatment of HSA contributions: The amount that could be contributed before taxes to the HSA would be increased to the out-of-pocket limit for the individual's HDHP (currently $5,250 for single coverage and $10,500 for family coverage). This provision would allow covered individuals to pay all out-of-pocket expenses under the HDHP with pre-tax dollars.  In addition, individuals making after-tax contributions to the HSA would be allowed an employment tax credit similar to the premium credit described in #1 above.
  • 3. Low-income tax credit: A refundable tax credit would be offered to low-income individuals and families for the purchase of eligible HDHP.  The credit would provide a subsidy of up to 90 % of the health insurance premium, up to a maximum dollar amount, and it would be phased down to zero at higher incomes.  Full details of the credit are provided in the 2006 Blue Book.

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