Are Health Share Plans Tax Deductible?

A health care sharing ministry, or health share plan, is an arrangement where members contribute monthly payments to cover the qualifying medical expenses of other members. These organizations are often comprised of individuals who share common ethical or religious beliefs. This model operates as an alternative to traditional health insurance.

Health Share Plans vs. Qualified Health Insurance

The distinction between a health share plan and qualified health insurance lies in their legal structure. Health insurance is a legal contract that obligates an insurer to pay for covered services. In contrast, a health share plan is a voluntary agreement among members with no legal guarantee that a claim will be paid.

These plans are not considered insurance, are not regulated by state insurance departments, and do not meet the Affordable Care Act’s (ACA) standard for “minimum essential coverage.” While the federal penalty for not having health insurance no longer applies, a few states have their own individual health insurance mandates with penalties for non-compliance.

Tax Deductibility of Monthly Share Payments

A primary question for members is whether their monthly payments are tax-deductible. Generally, the monthly amounts paid to a health share plan are not deductible as a medical expense on your federal income tax return. The Internal Revenue Service (IRS) defines a deductible medical expense in part as a payment for medical insurance, so these monthly share amounts do not qualify.

However, the U.S. Department of the Treasury and the IRS have issued proposed regulations that, if finalized, would permit these payments to be treated as medical expenses for tax deduction purposes.

Deducting Unreimbursed Medical Costs

While monthly share payments are not deductible, members can still deduct certain out-of-pocket medical costs under the same rules as any taxpayer. You can deduct qualified, unreimbursed medical expenses that exceed 7.5% of your Adjusted Gross Income (AGI) for the year. This deduction is only available if you itemize deductions on Schedule A (Form 1040) instead of taking the standard deduction.

For example, if your AGI is $50,000, the first $3,750 of your medical expenses are not deductible. If you had $6,000 in total unreimbursed medical costs, you could potentially deduct $2,250. Qualifying expenses are detailed in IRS Publication 502 and include payments to doctors, hospital care, and prescription drugs not reimbursed by your health share plan.

Interaction with Health Savings Accounts (HSAs)

Members of health share plans are not eligible to contribute to a Health Savings Account (HSA). Eligibility for an HSA is limited to individuals enrolled in a qualified High-Deductible Health Plan (HDHP), which is a specific type of health insurance. Since participation in a health share plan does not meet this prerequisite, members cannot contribute to an HSA.

This prevents members from taking advantage of the triple tax benefits of HSAs: tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses.