Yesterday my wife reminded me that it is time to sign up for our 2017 health insurance plan through her employer and this led to a discussion of the $6,000 deductible plus co-payments that we seem to incur every year in addition to our personal contribution of $8,000 for the “employer-paid” health insurance. And while we fully fund a Health Savings Account at maximum allowable amount, we manage to drain it dry every year before all the medical and dental bills are paid.
Even so, our estimated $21,000 total health care expenses for next year ($15,000 estimated medical cost plus an $6,000 estimated dental cost) is down from a peak of over $23,000 combined medical and dental costs only two years ago. That is primarily a result of her employer’s decision to lower the deducible from $10,000 to $6,000.
Next year I plan to tackle the out-of-pocket expenses a little differently. The new plan involves both employer paid supplemental insurance and a small business Health Reimbursement Arrangement. I’m sharing the thinking here.
What’s the most tax efficient way to cover out-of-pocket healthcare expenses? Either through supplemental insurance or a tax qualified reimbursement plan. If properly designed, the two can be sponsored by different employers. Her employer provides the primary coverage, my business will provide the supplemental insurance and our nonprofit company will provide a reimbursement plan.
Which is better, supplemental insurance or a reimbursement plan? It depends. Paying health care expenses through insurance rather than reimbursement plans is easier and more tax efficient for most small business owners who are restricted by the new rules of the Affordable Care Act. (See the earlier blog posts on this topic).
But does this overcome the cost and hassle of dealing with insurance? The answer seems to vary case by case. Some supplemental insurance has been great, others not so much.
Is there a workaround to restrictions on reimbursements? Yes, partly. A nonprofit corporation can establish a reimbursement plan for its unsalaried volunteer officers.
Can these strategies work for others? Again, it depends. I offer a free telephone consultation to small business owners who are in a similar situation. I’ve helped set up hundreds of cost-saving small business health plans for companies and self-employed individuals in all states since the 1980s. I’m one of the nation’s few small business health care advisers licensed in these types of insurance for all states and DC. I no longer act as agent to group benefit plans, only as adviser). We can discuss the options as they fit your unique situation.