You thought it was the holiday season, but it’s actually “Health Insurance Season.” With the Affordable Care Act (ACA)—also known as “Obamacare”—enrollment period in full swing, it’s critical to discuss the issue and know your options. Whether you’re working a healthcare exchange or purchasing from the private market, here are some critical items to keep in mind while you bargain shop this season.
1. Affordable Care Act Deadlines
The deadline for individual enrollment is January 31, 2016. If you want to make sure your coverage will begin on January 1, 2016, then you should enroll by December 15, 2015. Otherwise, your coverage period will start on February 1. If you’re an employer who wants to offer coverage through the exchange, you have a bit more flexibility.
Whatever your situation is, make sure you have your application in and don’t delay. The government won’t likely extend the deadline as they have in years past.
2. Health Insurance Penalties
The penalty for not having valid health insurance in 2016 jumps to $695 per adult and $347.50 per child, and maxing out at $2,085 per family. The income-based penalty rises to 2.5%. If you don’t have health insurance for the year, you must pay the greater of the two.
3. The Four Types of Health Insurance Plans
Understand the “metal” health insurance plans and the differences with each one. Essentially, you will have to choose between a Platinum, Gold, Silver or Bronze plan with different benefits, deductibles, and of course, premiums. Generally, the Platinum plans provide the greatest benefits and lowest deductibles, but are more expensive than the other plans. At the other extreme, Bronze plans have a high deductible and are the most affordable.
Keep your anticipated health in mind as you choose the right type of plan for your situation.
4. Deduct Your Insurance Premiums
Don’t forget that, as a small business owner, your premiums are fully tax deductible. There are nuances based on your business’ structure, however, so I’ve created the embedded video below that explains how the process works.
5. To Exchange, or Not to Exchange
Be aware of what enrollment options are available in your area. Are you using a state-run exchange, or the federal exchange at HealthCare.gov? You might have forgotten, but you can avoid the exchanges entirely by purchasing coverage privately. In short, you have a choice between buying from an exchange or the private market.
That means you shouldn’t feel like you’re stuck with an exchange. They can be a great place to start, but shop around to understand your options and then seek out a provider directly or through an insurance agent. The private marketplace for insurance is still alive and well.
6. The “Network” Is the Real Issue
As you read the details for each exchange plan, you will be surprised to see the wide range in premiums between the different types of “metal” plans. The reason isn’t just the benefits, but also the network of doctors that come with a particular plan. Many people don’t realize that the savings under certain policies are because the insurance company provides a smaller network of doctors under the plan, which may be stripped of additional benefits, like dental or vision care.
Before purchasing a plan, consider calling your preferred doctor or medical provider and ask them whether they accept the plan you’re considering. Doing so will save you from unwanted surprises when you show up to your preferred doctor.
7. Bet on Your Health
It’s important to consider high deductible insurance plans while shopping. If you’re healthy and want to self-insure yourself in the future, you can often get a lower premium with a higher deductible and fund a Health Savings Account (“HSA”).
HSAs allow you to make tax-free contributions into an account that can be used later for medical expenses. The account is administered by an IRS-approved trustee (e.g. bank, employer, etc.), and contributions to the account grow tax free. Again, contributions can be withdrawn at anytime, tax free, for health care expenses.
If the HSA isn’t a good fit for your family and you have high medical expenses, consider a Health Reimbursement Arrangement (HRA). HRAs allow you to deduct all of your medical expenses. In order to utilize an HRA, however, you need to have a small business. Here is my video on the topic:
8. Flexible Spending Account (FSA) Contributions Are Now Limited to $2,500 Per Year
For the uninitiated, a Flexible Spending Account (FSA) works similarly to a Health Reimbursement Arrangement (HRA). FSAs and HRAs differ in some minor administrative respects, but also in one major one, which we will discuss below. With respect to the Affordable Health Care Act, FSA contributions are now limited to $2,500 per year.
While this limit should be taken into consideration when considering your health and the type of insurance you need, consider other alternatives. The FSA is terrible for the W-2 employee, and is really just a corporate fringe benefit strategy that can rarely be implemented effectively by a small business owner.
Bottom line: If you or your spouse have an FSA at work, you should “use it or you’ll lose it.” But that being said, don’t plan on using it as part of a sound cost-saving strategy.
As a small business owner, FSAs are truly useless.
9. The Health Reimbursement Arrangement (HRA) Is a Fantastic Strategy for Those With Higher-Than-Average Medical Expenses
Now this strategy must be used by a small business owner, and again, the average American can’t even dream of doing this. The HRA is essentially a Section 105 plan that allows you to set up your own ‘benefit plan’ for health care and reimburse yourself for all of your health care expenses – thereby getting a 100% write-off for all of your medical expenses.
The only challenge can be the structure you need to use in order to make the plan work. Sometimes it takes a little extra business and certainly some attention to bookkeeping to make it happen, but again, it can be very lucrative and worth the extra time. Again, HRA use is another big topic, one that I break down in my new book, “The Tax and Legal Playbook.”
10. Long-Term Care Insurance Can Be Paid for Out of Your HSA or HRA
I truly believe that long-term care insurance is something everyone over 50 needs to carefully consider. I try to make sure all of my clients are writing off their health care expenses; this includes long-term care insurance! Those with an HSA can pay for the premiums directly out of the HSA.
Additionally, HRA-holders can get reimbursed as a business write-off for their long-term care premiums. The catch, however, is that there are ‘limits’ on how much you can write off. The limits range from $350 to $4,370 annually. For more information on the rules for long-term care as a medical expense, please see IRS Publication 502.
11. The Small Business Health Care Tax Credit for Small Employers
If you pay for an employee’s health insurance, then keep in mind this little gem. If you qualify, the Small Business Health Care Tax Credit is a literal dollar-for-dollar tax credit against any taxes you owe and up to 50% of any health care premiums you pay for on behalf of your employees.
There are a number of rules. While these rules aren’t bad, they do require you to cover at least 50% of the cost of single (not family) health care coverage, have fewer than 25 full-time equivalent employees, and those employees must have average wages of less than $50,000 a year.
Bottom line, don’t get frustrated. There are options, and knowledge is power. Keep learning about the topic and hang in there. Remember that you and your employees are all in the same boat, so make the choices that keep the boat afloat.