If paid out of pocket, health insurance premiums in the United States are tax deductible; but, out-of-pocket costs are not.This rule does have some exceptions, though.Among these are two frequently utilized tax-favored accounts:Accounts for flexible savings (FSA).Employees can utilize these accounts to set aside a percentage of their pretax income for approved medical expenses, but the money is forfeited at the end of the year if it is not used.accounts for health savings (HSA).
Employees can also use HSAs to save pretax money for approved medical costs, but unlike FSAs, HSA balances carry over from year to year.Only employees who sign up for a high-deductible health plan (HDHP) are permitted to make contributions to an HSA, while anybody with a qualified plan can enroll in an FSA.What is the effect of an FSA or HSA on health care spending?The answer is found in a publication by Ding and Glied (2024) using data on health care spending for working-age individuals from the Medical Expenditure Panel Survey (MEPS) 2011-2019.
According to their research,Due mostly to higher insurer-paid costs, families with FSAs spent $2033 (95% CI, $789-$3276), or 20% more, on health care each year than families without accounts.Families with HSAs had overall expenses comparable to those of non-account holders, spending an average of 44% or $697 (95% CI, $521-$873) more on out-of-pocket expenses and insignificantly more on insurance-paid expenses.On average, the extra tax expenses related to FSAs were $1306 (95% CI, $536-$2076) per year.
