Health insurance at a more reasonable cost

IRS Manual of Medical and Dental ExpensesFGS 

This is a quick posting. It deals with a law passed during the Bush administration. It may constitute the only action from the former president that is sensible even to his staunchest detractors.

In 2004 the law that deals with Health Savings Accounts made it possible to deduct from an individual taxpayer’s gross annual income a set figure for high-deductible health insurance plans. The health insurance plan of coverage must provide for a deductible that is at least as high as $1,000 per person and $2,000 per family. Eligibility is based on whether the individual is not covered under any low deductible health plan at work and is not covered by Medicare.

The essence of the benefit is that a taxpayer must set personal sums of money aside to defray the cost of medical care personally. For more serious expenses, the individual should secure coverage through an insurance carrier. There is a tax deduction for the amount set aside by the taxpayer and placed in a separate health savings account, earmarked for medical expenses.

In 2009, the maximum allowable contribution amount per person is $2,800 and $5,600 per family. Wait! Don’t run away scared. Read on and you will see how this benefits everyone concerned with lower priced catastrophic health insurance coverage.

Some people do not have health insurance because the cost for the coverage is very high. Others have health plans at work, but they have high deductibles. Yet others, leave their employment and find themselves clinging to the continuation of benefits under COBRA, but these extensions carry even higher premiums than those paid inside the former employer’s plan.

To provide a graphic example, COBRA for a single man aged 61 would amount to $1,100 per month. That’s $13,200 for one year and the premium paid would not be tax-deductible. The entire premium must be paid with after-tax dollars. The law in question provides for a more tax-efficient option.

The funds allocated to a health savings account are subtracted from the taxpayer’s gross earnings, before ordinary income taxes are paid. In the example, the insurance premium amounts to $350.00 monthly. For the individual in the example, the switch to the HSA plan would result in a monthly saving of $850.00. In addition, the total amount that in 2009 can be set aside in the plan is $2,800 plus an additional $1,000 catch-up contribution, available for those over age 55 this year, extending further the total allowable deduction to $3,800.

Don’t lose sight of the individual’s age in the example. The premiums would be much lower for younger plan participants. For those in a high tax bracket, the HSA contribution then, comes directly out of Uncle Sam’s pocket. For those in a lower tax bracket, the deduction is still valid, but there may be lesser funds available, which must be kept in mind too.

For business owners, the possibility of at least 60% total savings for employee health coverage is great. Employees would go to any doctor and purchase their medications using a debit card issued by a sponsoring bank where the funds would be deposited, FDIC insured. It would be simple and clean: a medical expense and a payment from the person’s HSA.

Now, there are important considerations to address before jumping blindly into anything. This may not be for the employee who is unable to afford the up-front high deductible without the employer’s assistance. A participating employer may need to contribute some or all of the money going into the employee’s health savings account, at least the first couple of years from the savings realized by moving out of the more traditional employer-sponsored group plan. This would be a matter of employer consideration.

This available choice is a timely alternative, especially now that socialized medicine is on the carpet in Congress. And most importantly, it is a private business enterprise that does not involve any government intervention. It is portable from employer to employer and may be retained individually.

We hope you learned something from this blog. It was intended to alert our readers to the largesse of the current tax code where we may derive a benefit while acquiring important insurance coverage at more modest premium structures. As always, these insurance issues are financial matters and their benefits are based on suitability constrictions, which may render them inappropriate for some. Read more about it before attempting to do anything.

That’s all for today. Thank you for dedicating some of your valuable time to read our blog. As always, we encourage comments and request participation about ways in which we may make this blog more pertinent and enjoyable.

About Francisco

Born in Cuba; political exile; American by choice; polyglot; father of four, grandfather of two; occupationally semi-retired; reader; writer; lover of mankind and nature; searcher of truths; hungry for wisdom; open-minded; romantic realist; critical thinker, enemy of despotism, government abuse, and inequality; believer and faithful; social liberal, fiscal conservative; in a quest to unmask the hypocrisy and the corruption enslaving overwhelming numbers of God's creatures around the world.
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