Poll: How do you cover health care expenses in ER?

[perinova]

Pay thru the nose plan...

Currently have temp (30 day) coverage.

I'm looking to be covered under state high risk pool.

DW and kids under individual plan.

It appears somewhere around 1000 - 1200 / month.

The health insurance system / medical system truly sucks. Doctors are motivated to document every possible illness (even if it turns out to be incorrect) to cover their A##. Then the insurance companies, read this bogus info and adjust coverage cost accrdingly.

That's very expensive! where are you living?
Is it going to be an HMO kind of plan with no deductible?

 

[ESRBob]

I don't remember the exact name, but NY has a community rating approach, like other northeastern states, which means healthy young people pay the same as older and possibly sicker people, but everyone has the opportunity to buy health insurance. I shopped around for the best bare bones/cheapest among the providers, which isn't cheap. I only decided to buy it because I wanted to protect my assets. (I rarely go to the doctor.) When I find a high deductible type policy, I'm bolting.

Kate,
There is a plan if you either have low income "Healthy New York" or have a self-incorporated company. Still not cheap by national standards but pretty good for New York.
http://www.ins.state.ny.us/website2/hny/english/hny.htm

 

[webbach]

From the healthy NY eligibility criteria for individuals: "You or your spouse must either be currently employed or must have been employed within the past 12 months." It doesn't seem that HNY would work out for FIREees.

Webby

 

[Billy]

Kate:

I don't remember the exact name, but NY has a community rating approach, like other northeastern states, which means healthy young people pay the same as older and possibly sicker people, but everyone has the opportunity to buy health insurance. I shopped around for the best bare bones/cheapest among the providers, which isn't cheap. I only decided to buy it because I wanted to protect my assets. (I rarely go to the doctor.) When I find a high deductible type policy, I'm bolting.

So is NY a 'right to insure' state? Maybe it's just me, but this type of approach leaves me a bit confused. On the one hand 'everyone' has the right to be insured no matter if you carried insurance before or paid into it for any length of time. If you are uninsured for years, but then become ill, then you have the 'right to be insured.' (which sounds great.) This raises the premiums for people who have been paying all along (like you said - to protect your assets). And then OTOH those who don't want to pay those higher prices and aren't electing to be insured fall into the high numbers of people who aren't insured and can't afford insurance. Then we hear about the millions 'who can't afford insurance" and the government should supply it.

It feels to me that this position is a bit on both sides of the fence here... What am I missing?

Be well,
Akaisha
Author, The Adventurer's Guide to Early Retirement

 

[chinaco]

... leaves me a bit confused. On the one hand 'everyone' has the right to be insured no matter if you carried insurance before or paid into it for any length of time. If you are uninsured for years, but then become ill, then you have the 'right to be insured.' (which sounds great.) This raises the premiums for people who have been paying all along (like you said - to protect your assets). And then OTOH those who don't want to pay those higher prices and aren't electing to be insured fall into the high numbers of people who aren't insured and can't afford insurance. Then we hear about the millions 'who can't afford insurance" and the government should supply it.

I will bet pre-existing conditions are not covered... Called antiselection or adverse selection in insurance underwritting parlance. You may be insured, but you will not get payment for the condition if it was known (detected/diagnosed). I am not sure about NY laws/regulations... however, I doubt they allow this behavior and impose the penalty on the company and consequently on the increase premiums to all people who do biz with the company. This is gaming the system!

 

[Billy]

Chinaco:

I will bet pre-existing conditions are not covered... Called antiselection or adverse selection in insurance underwritting parlance. You may be insured, but you will not get payment for the condition if it was known (detected/diagnosed). I am not sure about NY laws/regulations... however, I doubt they allow this behavior and impose the penalty on the company and consequently on the increase premiums to all people who do biz with the company. This is gaming the system!

I understand what you are saying. I don't pretend to know the total picture of the 'right to insure' states. But when I read about New Jersey (who is/was a right to insure state) they said that those who had not been covered previously (because they couldn't afford the payments) but then found out they had a serious illness had a 'right to be insured' under NJersey law.

I, too, thought it was odd... Now again, I could be wrong.
Does anyone know?

Normally, pre-existing conditions are not covered (depending on what they are) for a certain length of time. After that time passes, and there is no 'event' then the pre-existing condition is covered. This has been my experience.

Anyone else? Experience? Insight?

Be well,
Akaisha
Author, The Adventurer's Guide to Early Retirement

 

[ESRBob]

In NY, pre=existing conditions are excluded for 12 months. Otherwise people would wait until they got sick, then bind an insurance policy over the phone on the way to the hospital... I guess somebody here decided they didn't want to be that naive...

Hadn't noticed the thing about needing to be employed within the last year to get Healthy NY. One more reason to have a little self-employment company, I guess. 8) (Shameless plug for the merits of semi-retirement)

 

[AlmostDone]

ESRBob mentioned a self-incorporated company. What is that?

 

[BUM]

DW and I go it alone. We ER'd in '05, kept the S corp. open so we could afford group health insurance. Its our largest monthly expense


Its enough to make you sick

 

[ESRBob]

ESRBob mentioned a self-incorporated company. What is that?

If you have any kind of profitable little sideline business, you can have that business buy your health insurance. A couple caveats, if I'm remembering it all correctly (haven't dared to ask my accountant this stuff for the last few months, but they should be approachable by next week...):

If the business is not incorporated, ie a sole proprietorship or partnership, then you file a Schedule C and you can take the deduction for health insurance expenses on the front of your 1040, up to the limit of the profits in your business.

If the business is incorporated, though, -- an S-corp, or LLC that is incorporated (LLC's apparently can go both ways), then you can deduct the health insurance premiums as a business expense and that will flow through as a loss in the business, (and onto your 1040) making it fully deductible even if you don't have enough profit to cover the premiums. Having said that, you don't want to run losses forever in your company, in case somebody from the IRS comes knocking, so best to have enough self-employment income to cover the premium even in the self-incoporated case.

 

[kramer]

If you are really trying to get maximum benefit from the govies for your ER health care buck, then combine an HSA with the above the line deduction for Schedule C income.

Everyone can deduct the amount you annually contribute to an HSA (up to $2850/$5650 for single/couple) against earned or unearned income. Then you can deduct your actual premiums against your schedule C earned income. Schedule C income (if there is enough), also allows you to contribute to an IRA or ROTH IRA.

Of course, I believe that you must pay FICA/Medicare taxes on all of your schedule C income starting from profit dollar zero (~15% tax). At least your contributions to Social Security do slightly increase your social security check.

I am applying for a high deductible HSA policy. If I get it (big if, of course), just the HSA tax deduction will pay for all of my health insurance premiums for the rest of the year. I was working until recently. The value of this deduction will be worth less in future years when I have lower income.

Kramer

 

[ESRBob]

Of course, I believe that you must pay FICA/Medicare taxes on all of your schedule C income starting from profit dollar zero (~15% tax). At least your contributions to Social Security do slightly increase your social security check.

I am applying for a high deductible HSA policy. If I get it (big if, of course), just the HSA tax deduction will pay for all of my health insurance premiums for the rest of the year. I was working until recently. The value of this deduction will be worth less in future years when I have lower income.

Yep, you do need to pay sefl-employment tax on profits, although that also makes you eligible for contributing to an IRA. Note to self: can you use the 'same' dollars of self-employment profit to give you deductible health insurance premiums and deductible IRA?

And I think I know what you are saying about the HSA premiums being 'paid for' by the deduction (fungible dollars moving around your pockets, and two deductibles we're talking about here) but to be clear, the premiums aren't expenses you can pay for out of the HSA account balance, only the amounts you pay out of pocket toward the deductible are. The premiums get deducted in another place if you are self employed. If you aren't there is still a Schedule A deduction for premiums, but they are not likely to get over the 7.5% of AGI threshold, limiting or eliminating the value of the deduction.

 

[Allegany]

Unfortunately in NYS it is against state law for an individual to purchase a high deductible health plan with a HSA. NY needs to update their insurance laws.

 

[kramer]

Bob,

You are correct. I was employing mental accounting only when I said that the HSA tax deduction "paid for" my premiums this year. In reality, I cannot apply the HSA funds toward my premiums (nor would I even if it were possible).

My state (California) does not allow an HSA tax deduction and also taxes the gains. A bill to change this has been in the legislature each year but of course it goes nowhere. It would have a very low cost to the state, but the opposition to the bill is ideological in nature.

Kramer

 

[perinova]

If you have any kind of profitable little sideline business, you can have that business buy your health insurance. A couple caveats, if I'm remembering it all correctly (haven't dared to ask my accountant this stuff for the last few months, but they should be approachable by next week...):

If the business is not incorporated, ie a sole proprietorship or partnership, then you file a Schedule C and you can take the deduction for health insurance expenses on the front of your 1040, up to the limit of the profits in your business.

If the business is incorporated, though, -- an S-corp, or LLC that is incorporated (LLC's apparently can go both ways), then you can deduct the health insurance premiums as a business expense and that will flow through as a loss in the business, (and onto your 1040) making it fully deductible even if you don't have enough profit to cover the premiums. Having said that, you don't want to run losses forever in your company, in case somebody from the IRS comes knocking, so best to have enough self-employment income to cover the premium even in the self-incoporated case.

I haven't looked at schedule C recently but you can now deduct self employment health insurance on 1040 line 29.
I believe that an S-corp has a special rule making it apart from a C-corp and cannot deduct health spending (if I am wrong let me know I am interested to find this information). An S-corp shareholder would use the line 29 on his 1040.

 

[ESRBob]

Perinova,
Am looking into it -- re-confirming with the CPAs now and will post what I learn, unless anyone here already knows for sure?

 

[AlmostDone]

If you have any kind of profitable little sideline business, you can have that business buy your health insurance.

Do you still have to qualify for and purchase individual health insurance? Somehow I thought that being self-employed would give you access to group health insurance, but that doesn't sound like what is being said here.

 

[perinova]

Perinova,
Am looking into it -- re-confirming with the CPAs now and will post what I learn, unless anyone here already knows for sure?

Here are some info about on this subject.
http://www.coredocuments.com/irsheadliner163.php
http://www.irs.gov/businesses/small/article/0,,id=157049,00.html
Setting up a section 105 HRA doesn't seem very easy. So S-corp might not be the best choice on the health insurance front

 

[ESRBob]

Perinova,
Here is what my advisor just wrote back-- you were right, the S-Corp is treated more like a sole proprietorship for these purposes. I'll read through your links and see if it raises any more info.

"Sole proprietorships can deduct health insurance as an adjustment to income. They don't take it as a business expense however..... it does not reduce self-employment tax.

S-corp owners (greater than 2%) can do basically the same as sole proprietorships. It's not an expense of the corp. It's an adjustment to income. And .... I believe you can deduct it to the extent of profit plus owners' salaries. Actually, I'm sure owner salaries are included but not 100% sure you add in the profits.

C-corps can deduct health insurance as a an expense of the corp if they have a qualifying medical plan. They can deduct other medical expenses too .... if it's in the plan. The profits of the C-corp have nothing to do with the deduction. (My note: most self-employed would never be a C-corp)"

Almost Done -- yes, you should qualify for a special small group corporate plan, with the usual caveats for differences by state.

 

[tiredofwork]

Perinova,
S-corp owners (greater than 2%) can do basically the same as sole proprietorships. It's not an expense of the corp. It's an adjustment to income. And .... I believe you can deduct it to the extent of profit plus owners' salaries. Actually, I'm sure owner salaries are included but not 100% sure you add in the profits.

Health insurance premiums paid by the S-Corp are an expense of the S-Corp and reduce the income reported on the shareholders' K-1. However, 2% and greater shareholders who have health insurance premiums paid by the S-Corp have these premiums added to their W-2's as income. Then, on the 1040, most if not all, of the premiums come out of the 2% shareholder's income as an adjustment to income. The net effect is that the Schedule E income reported on the 1040 is reduced by the health insurance premiums. The addback to the W-2 of the shareholder is basically a "wash" on the wages after the adjustment to income.

Anyway, this is the way it works then the S-Corp makes a profit. Haven't had any experience with the loss side.

 

[Gotadimple]

If you have any kind of profitable little sideline business, you can have that business buy your health insurance. A couple caveats, if I'm remembering it all correctly (haven't dared to ask my accountant this stuff for the last few months, but they should be approachable by next week...):

In many states if you have a sideline business and can join a business association -- such as the local chamber of commerce or other industry association, you can purchase group insurance through the association. Most often, the rate may be the same or lower than individual insurance.

-- Rita

 

[ESRBob]

Just read the links: The Core Documents link looks a little suspect, based on their business model, but may be valuable. I think their main benefit over having the S-corp just buy a normal small group policy is what TiredofWork was just saying -- since the value of the premium is counted as w-2 (employment income), then maybe that means it is subject to self-employment tax (medicare and futa), too. A 15%+ tax on the value of the premium. Their package would perhaps help you get around that.


So what I get from the IRS Headliner is that there is a new (may 06) decision that penalizes you if, as an S-corp owner, you buy the insurance as an individual and try to get the S-corp to pay for it. You need a corporate group plan.

In contrast, a sole proprietor may buy insurance as an individual and still deduct it 'above the line'. Whether you'd want to buy as an individual or as the business would probably depend on state law, availability, premiums, and the like. Lots of states require two-person minimum size for groups. Couples get around this by forming a partnership instead of a sole proprietorship, and don't need to pay themselves wages. Still, with some hunting, one-person group plans are available in the states I've looked at.

Editing 4/24 #2<More discussions with accountant -- To summarize, there are 3 places where S-corp healthinsurance premiums touch the 1040 -- 1) as w2 income (Plus#1), 2) as a reduction in the S-Corp's income which flows into you through a K1 (minus #1) and 3) a deduction of the health care expenses you paid, offsetting the w2 income, on Line 29 (minus #2). Net effect is 1 deduction, but this would according to the accountant require you to do payroll if you aren't already, which could ba a pain or expense, and would (he says, I can't trace it through in my head) require paying self employment tax on the value of the premiums, which would also limit the attractiveness of this deduction.

In any case, the S-Corp must be the one sponsoring the group policy, otherwise you get into trouble as outlined above, and the premiums can only be deducted on your Schedule A with the hurdle > end edit

 

[tiredofwork]

(with a 15% self employment tax on one of the plusses?) I think this might explain why I've been 'fused!

The information from the K-1 flows to Schedule E (not Schedule C). Currently, there is no self employment tax for S-Corp income (I have read that the IRS wants to change this).

 

[ESRBob]

Yeah, my accountant was just saying IRS has issued guidelines that SCorp owners must take 50% or 0% or profits as salary (w2 income, subject to self-employment tax), while the rest can flow in via the K-1 as profits taxed at your personal rate, but not subject to SS and Medicare/Futa.

I think this has always been what people were supposed to do, but now they are giving explicit guidelines since everyone wants to get the income without paying self employment tax.

If you only have 5 or 10k of income, though, it appears that is under the radar and you would not need to take that small amount as w-2 income.