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HSA Insurance Contributions and My State Taxes

Posted: July 12, 2016

by John Hansen

Learn About HSA Insurance and the HSA Battle that Happens Every Year at the State Capitol in Sacramento

All the California health plans offer HSA insurance coverage. However, California is one of three states that do not allow HSA contributions to be deducted at a state level. A bill is brought up every year to remedy this, usually by Assembly woman Beth Gaines. And every year it is struck down. The question that arises is: What does Sacramento have against HSA insurance?

What is HSA insurance?

HSA is the acronym for Health Savings Account. HSA insurance allows California consumers to earmark money for medical expenses and deduct that money from their federal taxes. In 47 out of 50 states, consumers can also deduct this money from their income for their state taxes. But not in California!

Covered California offers an HSA insurance plan. Find out more about the Covered California Bronze 60 HSA Plan, or for information related to prescription drug coverage on this Bronze HSA plan, click here.

HSA Contribution Limits for 2016

If enrolled on an HSA insurance plan in 2016, you can contribute up to $3,350 for an individual or up to $6,750 for a family. For 55+ individuals, you can also do HSA catch-up contributions of $1,000. These contributions can be deducted from your federal taxes, but not from your California taxes.

Why does the State Congress not support HSA insurance?

Amongst Sacramento congressmen, “HSA is a bad word. They hate it.” This comment came from CAHU President, Michael Lujan.

The State Congress in Sacramento has fought hard to support the interests of California consumers, many of which are covered on HSA insurance plans. They have supported measures to increase access to health care for insured in California. So, why wouldn’t they support tax deductions at a state level for HSA contributions? There are two main reasons.

1. Loss of revenue

More deductions means less state taxes. In a time where California is facing a budget crisis and Governor Brown is being extremely careful with spending, anything that could decrease income for the state is suspect.

So even though this would decrease costs for consumers (covered with HSA insurance), each year this legislation dies in Congress. With this year being an especially tight year for Capitol Hill, there is little to no chance that the State Congress would approve Beth Gaines’ bill to allow HSA contributions to be deducted from state taxes in California.

2. Political affiliation

Democrats hate HSA’s. That’s just how it is. When you have a State Congress full of Democrats, it’s very difficult to get through any legislation that favors HSA insurance and state tax deductions.

California is one of the most liberal states in the USA. It is no surprise that State Congress is dominated by Democrats. The Democratic party is very close to having a super majority in the state legislature, where they will have the majority vote in both the State House and the Senate. If they get the super majority, Democrats will be able to pass measures without a single vote from the Republican congressmen. This presents problems for legislation that favors state tax deductions HSA insurance contributions.

Federal HSA insurance legislation, promoted by George W. Bush, went into effect on December 8, 2003. Democrats tend to have great distaste for Bush that is unmatched by their ill-feelings for any other political leader. This may be the reason why California Democrats in the State Congress have consistently been opposed to legislation related to HSA contributions and state tax deductions.