Illinois Health Insurance Practice Exam

What determines if tax deductions can be allowed for premiums on individual hospital/medical expense policies?

1. A. Insurance company's discretion

2. B. Individual's filing status

3. C. Insurance policy's premium amount

4. D. Affiliation with the MIB report

The correct answer is: B. Individual's filing status

The ability to deduct premiums for individual hospital and medical expense policies is primarily determined by the individual's filing status. This means that the specific circumstances of the taxpayer—such as whether they are single, married, or head of household—can influence their eligibility for tax deductions. In particular, different filing statuses can affect the threshold for itemizing deductions and the overall tax obligation. For individuals who want to deduct medical expenses, including health insurance premiums, they must generally itemize their deductions on their tax returns. Furthermore, there is often a requirement that total medical expenses exceed a certain percentage of the individual's adjusted gross income (AGI) to qualify for the deduction. This rule inherently ties the deductions to the individual’s financial situation, which is directly related to their filing status. The other options provided do not accurately determine tax deductibility for health insurance premiums. For instance, the discretion of the insurance company does not impact a taxpayer’s ability to claim tax deductions, nor does the premium amount itself determine eligibility. Additionally, an affiliation with the Medical Information Bureau (MIB) relates to underwriting and risk assessment rather than tax deductions.