Self employed health insurance—what counts?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills.
Post Reply
Topic Author
MadDwag
Posts: 99
Joined: Wed Apr 05, 2017 9:07 pm

Self employed health insurance—what counts?

Post by MadDwag »

Greetings,

I’m investigating my options available for health insurance next year. We are currently on a marketplace (ACA) plan, but the premiums are set to go up 20%+ along with deductible going up a good amount as well.

I recently got a quote for a non-marketplace plan, which the rep was careful to point out it doesn’t meet the requirements for “minimum essential coverage” due to restrictions that don’t really apply to me or my family. The question I have is, does that distinction jeopardize my ability to deduct the premiums (I’m a sole proprietor).

Similarly, my dentist has a prepaid discount program available where we pay upfront for a couple cleanings and any additional work is discounted. Would that count as dental coverage I could deduct, or would that fall under a Schedule A type of deal instead?
chassis
Posts: 1137
Joined: Tue Mar 24, 2020 4:28 pm

Re: Self employed health insurance—what counts?

Post by chassis »

MEC or minimum essential coverage is no longer Federal law, since 2019. Your state may have a requirement for MEC.

Dental coverage is viewed by many, including myself, as a cost deferral plan. There is no free lunch with dental service, the consumer pays the full price, no matter what. Whether paid full retail at time of service or via premium + discounted payment at time of service, there is little difference in total cost to the consumer.
quantAndHold
Posts: 7934
Joined: Thu Sep 17, 2015 10:39 pm

Re: Self employed health insurance—what counts?

Post by quantAndHold »

In what way does the plan not meet requirements for minimum essential coverage? What’s the out of pocket maximum? Does it have annual or lifetime limits?

Stuff happens. You can be the healthiest, fittest person in earth, but your health can change in an instant, and the pennies you saved on premiums will look stupid in hindsight, when the bills for the cancer treatment start coming.
Yes, I’m really that pedantic.
Topic Author
MadDwag
Posts: 99
Joined: Wed Apr 05, 2017 9:07 pm

Re: Self employed health insurance—what counts?

Post by MadDwag »

chassis wrote: Wed Nov 23, 2022 10:12 pm Dental coverage is viewed by many, including myself, as a cost deferral plan. There is no free lunch with dental service, the consumer pays the full price, no matter what. Whether paid full retail at time of service or via premium + discounted payment at time of service, there is little difference in total cost to the consumer.
Agreed; the cost is basically the same as the cleanings and x-rays so the discount off potential other stuff is a plus. My question though is can this be considered “insurance” in terms of me being able to deduct the premiums as a self employed person.
Topic Author
MadDwag
Posts: 99
Joined: Wed Apr 05, 2017 9:07 pm

Re: Self employed health insurance—what counts?

Post by MadDwag »

quantAndHold wrote: Thu Nov 24, 2022 2:48 am In what way does the plan not meet requirements for minimum essential coverage? What’s the out of pocket maximum? Does it have annual or lifetime limits?
I was worried at first when I heard the term, but the policy wouldn’t cover pregnancy, which not a concern as the plumbing has been shut off :o . As far as the annual or lifetime limits, that’s an excellent point and why I was leaning towards the policy that doesn’t have the limits.
FellsGuy
Posts: 191
Joined: Thu Dec 23, 2021 1:30 pm

Re: Self employed health insurance—what counts?

Post by FellsGuy »

Principal of Insurance is to cover what you cannot afford to lose. Why people insure Toasters, TV's and Iphones I'll never understand. If the insurance doesn't qualify in some way as coverage by the state there is a reason and its one you don't want to find out about when you or a loved one is diagnosed with some rare form of...and the medication / treatment is $100,000 a month.
“Annual income twenty pounds, annual expenditure nineteen nineteen and six , result happiness. | Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery”
Nyc10036
Posts: 1484
Joined: Wed Oct 05, 2016 6:29 pm

Re: Self employed health insurance—what counts?

Post by Nyc10036 »

MadDwag wrote: Thu Nov 24, 2022 9:00 am
quantAndHold wrote: Thu Nov 24, 2022 2:48 am In what way does the plan not meet requirements for minimum essential coverage? What’s the out of pocket maximum? Does it have annual or lifetime limits?
I was worried at first when I heard the term, but the policy wouldn’t cover pregnancy, which not a concern as the plumbing has been shut off :o . As far as the annual or lifetime limits, that’s an excellent point and why I was leaning towards the policy that doesn’t have the limits.
I keep reminding people that if you are ever involved in an auto accident where you require medical care,
you will be needing that medical insurance.
The chances of getting T-boned is something I worry about with all the folks running red lights.
User avatar
Lee_WSP
Posts: 8330
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: Self employed health insurance—what counts?

Post by Lee_WSP »

quantAndHold wrote: Thu Nov 24, 2022 2:48 am
Stuff happens. You can be the healthiest, fittest person in earth, but your health can change in an instant, and the pennies you saved on premiums will look stupid in hindsight, when the bills for the cancer treatment start coming.
I agree, but the counter argument is that you can switch insurance once a year or whenever a qualifying life event happens. A better example is any catastrophic issue which would bankrupt you or endanger retirement.
User avatar
MP123
Posts: 3030
Joined: Thu Feb 16, 2017 3:32 pm

Re: Self employed health insurance—what counts?

Post by MP123 »

MadDwag wrote: Wed Nov 23, 2022 9:36 pm Similarly, my dentist has a prepaid discount program available where we pay upfront for a couple cleanings and any additional work is discounted. Would that count as dental coverage I could deduct, or would that fall under a Schedule A type of deal instead?
I haven't seen any official guidance about the tax treatment of these pre-paid Dental plans. My personal feeling is that they are pre-paying for dental expenses that may or may not be incurred. For example, if you pay for the plan but never go to the dentist have you incurred a deductible medical/dental expense under Pub 502? I don't think so, but it's a pretty gray area.

On the other hand it's not really insurance either.

Deducting it under SEHI would avoid FICA which seems to be a somewhat aggressive position vs. taking on Sch A (if it rises to the level where that would make sense).
HouseOfLancaster
Posts: 114
Joined: Tue Jul 28, 2020 11:51 am
Location: U.S.A.

Re: Self employed health insurance—what counts?

Post by HouseOfLancaster »

MadDwag wrote: Wed Nov 23, 2022 9:36 pm
I recently got a quote for a non-marketplace plan, which the rep was careful to point out it doesn’t meet the requirements for “minimum essential coverage” due to restrictions that don’t really apply to me or my family. The question I have is, does that distinction jeopardize my ability to deduct the premiums (I’m a sole proprietor).
No, it does not. You may deduct the premiums (subject to the same income restrictions that apply to deductions of ACA plan premiums).
MadDwag wrote: Wed Nov 23, 2022 9:36 pm Similarly, my dentist has a prepaid discount program available where we pay upfront for a couple cleanings and any additional work is discounted. Would that count as dental coverage I could deduct, or would that fall under a Schedule A type of deal instead?
This I'm not as positive about, but I'd be very, very, very surprised if you could deduct this as SE health insurance. The SE deductions that come with my dental insurance plan are the primary benefit of going this route rather than self-insuring and paying out of pocket. While these 2 options are close to a wash on a pre-tax basis, that's not at all the case on an after-tax basis in my case.
secondcor521
Posts: 975
Joined: Wed Sep 10, 2014 4:11 pm

Re: Self employed health insurance—what counts?

Post by secondcor521 »

I don't see any mention of dental insurance in the instructions for the SEHI deduction, which was on Schedule 1 line 17 for 2021. Maybe I missed it, or maybe it's buried in the legal underpinnings somehow.
User avatar
MP123
Posts: 3030
Joined: Thu Feb 16, 2017 3:32 pm

Re: Self employed health insurance—what counts?

Post by MP123 »

secondcor521 wrote: Thu Nov 24, 2022 1:21 pm I don't see any mention of dental insurance in the instructions for the SEHI deduction, which was on Schedule 1 line 17 for 2021. Maybe I missed it, or maybe it's buried in the legal underpinnings somehow.
It's mentioned in Pub 535 when discussing SEHI

https://www.irs.gov/publications/p535#e ... 1000208843
You may be able to deduct the amount you paid for medical and dental insurance and qualified long-term care insurance for yourself, your spouse, and your dependents. The health insurance can cover your child who was under age 27 at the end of 2021, even if the child wasn’t your dependent. A child includes your son, daughter, stepchild, adopted child, or foster child. A foster child is any child placed with you by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction.
But another issue is that some healthcare insurance includes dental coverage, so it may be hard to separate the premiums. And, of course, the pre-paid plans aren't really insurance (by most standards) in the first place.
User avatar
MP123
Posts: 3030
Joined: Thu Feb 16, 2017 3:32 pm

Re: Self employed health insurance—what counts?

Post by MP123 »

Interestingly, there is no mention of dental insurance in Section 162(I) which is what Pub 535 is interpreting:

https://www.law.cornell.edu/uscode/text/26/162
(l)Special rules for health insurance costs of self-employed individuals
(1)Allowance of deduction
In the case of a taxpayer who is an employee within the meaning of section 401(c)(1), there shall be allowed as a deduction under this section an amount equal to the amount paid during the taxable year for insurance which constitutes medical care for—
(A)the taxpayer,
(B)the taxpayer’s spouse,
(C)the taxpayer’s dependents, and
(D)any child (as defined in section 152(f)(1)) of the taxpayer who as of the end of the taxable year has not attained age 27.
twh
Posts: 807
Joined: Sat Feb 08, 2020 3:15 pm

Re: Self employed health insurance—what counts?

Post by twh »

Might be interesting to those looking on the ACA...

https://www.marottaonmoney.com/how-the- ... 23-onward/
Topic Author
MadDwag
Posts: 99
Joined: Wed Apr 05, 2017 9:07 pm

Re: Self employed health insurance—what counts?

Post by MadDwag »

HouseOfLancaster wrote: Thu Nov 24, 2022 12:01 pm
MadDwag wrote: Wed Nov 23, 2022 9:36 pm
I recently got a quote for a non-marketplace plan, which the rep was careful to point out it doesn’t meet the requirements for “minimum essential coverage” due to restrictions that don’t really apply to me or my family. The question I have is, does that distinction jeopardize my ability to deduct the premiums (I’m a sole proprietor).
No, it does not. You may deduct the premiums (subject to the same income restrictions that apply to deductions of ACA plan premiums).
MadDwag wrote: Wed Nov 23, 2022 9:36 pm Similarly, my dentist has a prepaid discount program available where we pay upfront for a couple cleanings and any additional work is discounted. Would that count as dental coverage I could deduct, or would that fall under a Schedule A type of deal instead?
This I'm not as positive about, but I'd be very, very, very surprised if you could deduct this as SE health insurance. The SE deductions that come with my dental insurance plan are the primary benefit of going this route rather than self-insuring and paying out of pocket. While these 2 options are close to a wash on a pre-tax basis, that's not at all the case on an after-tax basis in my case.

Thank you. This is what I was thinking, but it helps to see others’ opinions as well.
Post Reply