California’s uniquely high cost of living has permeated every industry, and health care is no exception. Health care spending in California totaled $405 billion in 2020, growing faster on an annual average basis than health spending in the U.S. as a whole.
Nearly 40% of Americans have delayed going to the doctor and receiving the care they need because of the cost. This is unacceptable. Even worse, when Californians try to save for their healthcare costs, our state taxes them for it.
Many Americans open Health Savings Accounts (HSA) to save money on current and future health care costs including medical, dental, vision, and prescription expenses. Nationwide, there are over 35 million HSA accounts, and the U.S. is expected to approach 43 million accounts by 2025. Over half of individuals with an HSA live in zip codes where the median income is below $75,000 annually. In California, over 5 million people, including dependents, are covered by an HSA. Families and individuals appreciate that HSAs allow them to decide how and when to spend their medical expenses and gives employers the ability to help pay for deductibles, co-payments, and co-insurance.
For most of the country, HSAs are tax free, and they are not subject to federal income tax. However, California taxes HSA contributions and taxes employers who contribute to their employee’s HSA. Workers who save money in these accounts to help lower their monthly premiums or pay for out-of-pocket medical expenses, and employers who decide to contribute to an employee’s HSA get taxed for trying to cover these necessary health care costs.
Here’s an example: Angela is a California employee who is enrolled in family coverage through her consumer directed health plan. She contributes $3,000 to her HSA through payroll and her employer contributes $1,000 to the HSA. For federal income tax purposes, Angela and her employer’s HSA contributions are pre-tax and tax-free. In California, Angela’s HSA’s contributions are reported as taxable income, driving up her state taxes, and her employer’s contributions to her HSA are treated as after-tax contributions.
This is a direct attack on low and middle-income families by a state that is intent on taxing its hardworking citizens in any way possible. This tax on health care savings is so unusual that, outside of California, only New Jersey punishes families who rely on HSAs in this way.
Californians have had enough. I have heard from countless constituents who are frustrated with Governor Newsom’s constant efforts to tax them out of a living, closing the door to opportunity. That is why I sent a letter to Governor Newsom with six of my colleagues from California Congressional delegation urging him to end this unnecessary and harmful taxation of Californians’ health care savings.
The five million Californians who rely on HSAs deserve to have the same health care options as their fellow Americans. This unfair tax targeting low and middle-income Californians must end immediately. HSAs ensure Californians can control and manage their health care savings the way they see fit. Families, not the government, know how to take care of their needs best.
I am working on multiple ways to reduce health care costs including strengthening hospital price transparency, encouraging competition, improving access to care, and urging Governor Gavin Newsom to reform health care policy on the state level. I urge Governor Newsom and legislators in Sacramento to join me in bringing down health care costs across the board.
Michelle Steel represents the 45th congressional district.
