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Death of the deductible health insurance premium

Obamacare was sold to us with the belief that everyone needed health insurance and it was everyone’s responsibility to bear the cost. The program has now expanded to include everyone, even those paying little to nothing for their insurance. This has put such a burden on the health care system that the expected increase in premiums is estimated between 12 and 15 percent.

In the past, the only reprieve that a business owner had was to deduct the insurance premiums.

Last July, a new law was passed that disallowed a company to directly reimburse an employee for health insurance premiums paid for a personally owned policy. Under old rules, with a Health Reimbursement Plan or a Health Reimbursement Arrangement you could simply buy your own policy and have your company reimburse you. After the new rule, you could be liable for a $100 per day penalty for each employee engaged in such an arrangement.

This ruling has spurred new companies to rise to meet the opportunity. These companies act as an administrator in following new rules under Section 105 and 125 to allow you to still deduct premiums paid for an independently owned policy.

You may be wondering, “Why not simply buy a group policy?” The reason is that the estimated cost of a group policy may be as much as 40 percent more than each employee obtaining their own independent policy. This increased cost has left the business owner no option but to increase deductibles and limit benefits to be able afford these newly increased premiums.

When using an independent policy, each person can determine what coverage he or she desires. The business owner can then offer a per employee reimbursement to cover the basic costs. If the employee wants all the bells and whistles, he or she can simply pay the amount above what the employer reimbursement is.

While the new rules create additional steps for the business owner, there is still a legal way to offer either yourself or your employees a tax deductible benefit. If you want to get a double benefit, then utilize one of the most underused health benefits with a Health Savings Account. If you are under age 55 you can invest up to $6,750 or if you are over 55 then you can add up to $7,750. This is a full tax deduction and you can use this account to pay for all those annoying health expenses like co-pays or deductibles. The only catch is you have to have a policy that is HSA compatible.

These are very troubling times with the state of the health care system and the risk of a large medical expense. I would implore any business owner to find out all they can on how to reduce costs and taxes while still protecting your assets and income with the right insurance arrangement.

Ken Himmler is a fiduciary adviser specializing in financial estate planning. His firm, H&H Retirement Design and Management Inc. located in Downtown Summerlin, does not act as an insurance agent but as a business consultant. He has spoken on financial planning to more than 500,000 people during his career. Reach him at 702-470-2660.

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