According to the Kaiser Family Foundation, average annual health insurance premiums hit $7,911 for single coverage and $22,463 for family coverage as of 2022, before Affordable Care Act subsidies are taken into account. This is where the best Health Sharing plans can help out!
The Best Health Sharing Plans
If you’re among the millions of Americans who don’t get an Obamacare subsidy, or you’re a business owner paying for health benefits for your employees, you already know that health insurance costs are a huge burden on small businesses and on household budgets.
Deductibles have been increasing too… putting access to quality health care more and more out of reach for ordinary Americans:
In 2014, the average deductible for a single person was around $1,217.
By 2023, the average deductibles had risen to $7,481 for Bronze plans, $4,890 for Silver plans, $1,650 for Gold plans, and $45 for Platinum plans, again according to data from the Kaiser Family Foundation.
Best Health Sharing Plans: A Cost-Effective Alternative to Traditional Health Insurance Products
Healthshare plans offer a viable solution for small business owners and self-employed individuals seeking to control their healthcare costs.
One of the most compelling aspects is the savings potential, often significantly outpacing traditional unsubsidized health insurance premiums.
Consider this real-world example:
John, a self-employed consultant, had been paying $700 per month for an unsubsidized health insurance plan that provided essential coverage.
That adds up to $8,400 annually.
Now, John switched to a health sharing plan with an equivalent coverage level, which cost him only $350 per month, or $4,200 annually.
This simple change saved him $4,200 each year, making health sharing a more cost-effective option.
Net of Taxes: The Bottom Line
When you calculate these savings, remember that health sharing contributions are typically made with post-tax dollars, while health insurance premiums are usually tax-deductible for the self-employed.
To provide an accurate comparison, let’s consider John’s situation again.
His $8,400 health insurance premium was tax-deductible, but even factoring in the tax savings (let’s assume he’s in the 22% tax bracket), he still spent around $6,552 net of taxes on insurance.
On the other hand, his $4,200 health sharing plan was paid with post-tax dollars, which means his net cost remained $4,200.
In this case, health sharing still outperforms traditional health insurance, even after accounting for the tax deductibility of premiums.
Savings Across the Board
John’s case is just one example of the potential savings.
Health sharing offers various plan options to accommodate individual needs and preferences.
Different health sharing programs cater to diverse preferences, from basic plans to comprehensive ones.
The key is that they often come at a fraction of the cost when compared to traditional health insurance.
It’s not only monthly premiums that are more affordable; health sharing plans frequently feature lower deductibles, out-of-pocket maximums, and no network restrictions, making them financially attractive across the board.
The Best Health Sharing Plans Are Customized to Your Needs
Health sharing’s flexibility allows you to tailor your coverage to suit your specific requirements.
For instance, if you’re a young, healthy individual, you may choose a plan with a higher deductible and lower monthly contribution.
On the other hand, if you have ongoing medical needs, a plan with a lower deductible may be more suitable.
This customization empowers you to optimize your costs without compromising on your healthcare.
The financial advantages of health sharing for small business owners and self-employed individuals are clear: substantial cost savings, tax benefits, and flexible coverage options.
By choosing health sharing, you can not only lower your healthcare expenses, but also secure quality healthcare tailored to your unique needs.
In our next section, we’ll delve into the significant tax benefits that come with health sharing and discuss the role of Health Savings Accounts (HSAs) in maximizing financial efficiency.
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Understanding Tax Implications for Employers and Employees
Health sharing contributions, when made by businesses on behalf of employees, come with distinct tax considerations that need careful evaluation.
While these contributions are often tax-deductible for businesses, they are generally viewed as taxable income for employees.
Tax Treatment for Employers
Employers who opt to contribute to their employees’ health sharing plans can typically treat these contributions as compensation expenses.
This is good news because it means the business can deduct these contributions from its taxable income.
However, it’s crucial to bear in mind that this tax benefit applies to the company, not the employee.
Tax Treatment for Employees
For employees, it’s a slightly different story. Contributions made on their behalf are typically considered taxable income.
This means that the employee may be responsible for paying income tax on the contributions provided by the employer. It’s essential to be transparent with employees about this aspect and potentially explore ways to “plus up” their cash compensation to offset the additional tax liability.
“Plussing Up” Compensation
To address the tax implications for employees, some businesses choose to “plus up” the cash compensation of employees.
This involves providing employees with additional taxable income to account for the tax liability associated with the health sharing contributions. It’s important to note that this approach doesn’t eliminate the tax liability but can help employees manage it effectively.
Don’t Let the Tax Tail Wag the Health Plan Dog
Some weaker or less experienced accountants only think about short-term tax deductions in order to justify their fees. But they don’t grasp the big picture.
They just want to show deductions to their client, even though the client may be better off NOT taking the deduction, but deferring the tax benefit to later years. Or using a product or account that is not immediately deductible, but is much less expensive even with the deduction.
These advisors are often thinking tactically, not strategically.
This is why some accountants don’t grasp the benefits of health sharing. Health sharing costs are not deductible (except as a compensation expense for employers). In the long run the savings more than make up for the lack of immediate, current year tax deductibility.
Case Study: Cost Savings for Young and Healthy Employees
Let’s examine a hypothetical case study of a small business with a team of young and healthy employees.
The business currently offers a traditional group insurance plan with a monthly premium of $500 per employee. The total annual cost for the business is $60,000.
By transitioning employees to a health sharing plan, the business can significantly reduce its healthcare expenses.
Let’s say the equivalent health sharing plan costs $250 per employee per month, amounting to an annual expense of $30,000. This represents a cost reduction of $30,000 annually, a substantial savings.
Even though employees may face some tax implications due to the taxable nature of health sharing contributions, the overall savings more than compensate for this factor.
The business could choose to “plus up” employees’ cash compensation to help offset the tax liability, ensuring that employees still experience cost savings.
Optimizing Financial Strategies with Tax Professionals
To strike the right balance between tax considerations and cost savings, it’s advisable to collaborate with tax professionals or accountants who are well-versed in health sharing and tax regulations.
They can help design a strategy that maximizes the financial benefits of health sharing while effectively managing the associated tax implications.
Small and medium-sized businesses can achieve significant savings through health sharing, especially when transitioning from traditional group insurance products.
Working with financial professionals can help strike the right balance between cost savings and tax efficiency, ensuring a well-rounded financial strategy.
In the next section, we’ll explore how health sharing plans meeting Minimum Essential Coverage (MEC) requirements can be seamlessly combined with Health Savings Accounts (HSAs) to achieve maximum cost-efficiency and tax benefits.
Combining the Best Health Sharing Plans & an HSA
To contribute to a Health Savings Account (HSA), you must be enrolled in a qualified High Deductible Health Plan (HDHP).
An HDHP is a specific type of health insurance plan characterized by its higher deductible and lower premiums. This deductible threshold is set annually by the IRS and must be met before the insurance coverage kicks in.
HSAs are designed to work in tandem with HDHPs, offering individuals and families a tax-advantaged way to save for qualified medical expenses.
The contributions made to HSAs are tax-deductible, grow tax-free, and can be withdrawn tax-free when used for eligible healthcare expenses, making them a valuable tool for both healthcare and tax planning.
While most health sharing plans do not support HSA contributions due to specific plan structures, there is an exception known as the HSA SECURE plan. HSA SECURE is designed to be fully compatible with HSAs and provides an innovative approach to healthcare cost-sharing.
What sets HSA SECURE apart is that it offers the ten minimum essential coverages required by the IRS to qualify as an HDHP.
This means that individuals or families enrolled in HSA SECURE can enjoy the financial advantages of both health sharing and HSAs.
With this unique compatibility, they can make tax-deductible contributions to their HSAs while benefiting from the cost-sharing aspects of their health sharing plan, creating a powerful and comprehensive healthcare and financial solution.
Maximizing the Impact of Numbers: Making Financial Decisions that Count
In the realm of financial decisions, particularly in healthcare, numbers hold immense significance.
Small business owners and the self-employed have a keen eye for data, aiming to optimize savings while ensuring tax efficiency.
Case Study 1: Amplifying Savings with HSAs – From Contributions to Healthcare Expenses
Let’s delve into a scenario featuring an individual in the 22% effective tax bracket, emphasizing both payroll and income tax savings.
Consider John, a self-employed professional with an annual income of $70,000. He contributes $4,000 to his Health Savings Account (HSA) during the year.
- Tax Savings on Contributions.
John’s $4,000 HSA contribution yields savings at two stages – income tax and payroll tax.
- Income Tax Savings.
By contributing $4,000 to his HSA, John reduces his taxable income by the same amount, resulting in an income tax savings of $880.
- Payroll Tax Savings.
John’s HSA contributions are not subject to payroll taxes, such as Social Security and Medicare. At a 7.65% payroll tax rate, this leads to additional savings of $306. This aspect often goes unnoticed, but it significantly impacts the overall tax savings.
- Effective Contribution Cost.
When considering both income and payroll tax savings, John’s $4,000 HSA contribution effectively costs him only $2,814 ($4,000 – $880 – $306). This reflects a remarkable 30.45% reduction in costs.
- Tax-Efficient Healthcare Expenses.
John can then use his HSA funds for qualified medical expenses, and these withdrawals are tax-free. His healthcare expenses effectively have a 30.45% discount.
- Future-Proofed Funds.
John’s HSA funds grow tax-free, allowing him to accumulate savings for future healthcare needs and beyond. Furthermore, at age 65, he can access these funds for any purpose without penalty, providing both flexibility and security in retirement planning.
Case Study 2: A Holistic Approach to Cost-Efficiency – Incorporating Payroll Tax Savings
In this scenario, we’ll continue to highlight both income and payroll tax savings, with a focus on health sharing for a family of four.
- Traditional Health Insurance.
The family’s annual health insurance premium amounts to the national average of $23,000. In a 22% tax bracket, their income tax savings are $5,060, and they also enjoy payroll tax savings of $1,759.
- Health Sharing.
The family switches to a health sharing plan that costs around 60% of the traditional insurance premium, totaling $13,800 annually. Even without tax deductions for premiums, the family’s net annual cost remains $13,800.
- Annual Tax Savings.
By switching to health sharing, the family achieves annual tax savings of $6,819 ($5,060 from income tax and $1,759 from payroll tax). This results in a substantial 29.64% reduction in healthcare costs, emphasizing the comprehensive nature of tax savings.
Flexibility in Action: Health Sharing and HSAs Combined – A Holistic Approach
The synergy between health sharing and HSAs allows small business owners and the self-employed to maximize their financial strategies.
Let’s explore a case study that showcases this synergy while considering both income and payroll tax savings.
- HSA Contributions.
A self-employed individual, Susan, contributes $4,000 to her HSA, resulting in income tax savings of $880.
- Health Sharing Plan.
Susan switches to a health sharing plan that costs around 60% of a traditional insurance premium, totaling $8,280 annually for an individual plan.
- Payroll Tax Savings.
The HSA contributions are exempt from payroll taxes, providing payroll tax savings of $306.
- Annual Savings.
By combining her HSA with a cost-effective health sharing plan, Susan achieves comprehensive annual tax savings of $5,166 ($880 from income tax and $4,286 from payroll tax). This results in a substantial 37.39% reduction in her healthcare expenses compared to a traditional insurance plan, reflecting a holistic approach to savings.
The Best Health Sharing Plans Conclusion
The financial advantages of health sharing and HSAs extend far beyond income tax savings, encompassing often overlooked payroll tax savings.
Small business owners and the self-employed can realize substantial comprehensive savings by utilizing these potent financial tools. These case studies emphasize that it’s possible to achieve significant cost reductions while maintaining financial flexibility and security, taking into account both income and payroll tax implications.
Health sharing and HSAs are not merely theoretical concepts; they translate into substantial and comprehensive financial benefits.
The case studies above demonstrate that individuals can achieve meaningful savings, often in the range of 30% to 37%, by optimizing their healthcare expenses with these strategies.
In the next section, we’ll conclude our discussion, underscoring the importance of seeking guidance from financial professionals who understand the intricacies of health sharing and HSAs for personalized financial success.
A Seamless Path to Savings: Leveraging Transparency, Cash Discounts, and Financial Tools
The Era of Transparent Healthcare
Recent legislation has ushered in a new era of transparency in healthcare pricing.
The growing push for greater clarity in hospital pricing makes it easier for individuals, including health sharing members, to navigate and make informed decisions regarding non-emergency medical services and procedures.
Quantifying Savings through Transparency
Health sharing members can harness the benefits of this transparency, ensuring that they maximize savings through well-informed choices.
Consider the following case study.
Case Study: Transparency Leading to Savings
A family of four, previously under a traditional health insurance plan, was spending the national average of $23,000 annually.
Their effective cost, considering a 22% income tax bracket, was $17,940.
After transitioning to a health sharing plan that costs around 60% of the traditional insurance premium, or $13,800 annually, they achieve an annual savings of $4,140.
This amounts to a remarkable 23% reduction in healthcare costs, as previously discussed.
Unlocking Cash Payer Discounts – A Hidden Advantage
While the focus is often on premium costs, an underappreciated benefit is cash payer discounts.
Health sharing members are often eligible for these discounts when seeking medical care. These discounts can significantly contribute to overall savings.
Case Study: The Power of Cash Discounts
Susan, a health sharing plan member, required a non-emergency surgical procedure.
She researched local healthcare providers and requested pricing information.
By comparing costs at various facilities, Susan discovered a healthcare provider offering the same procedure at a lower rate while maintaining high-quality standards.
- Cash Payer Discount.
Susan reached out to the chosen provider and inquired about cash payer discounts. She was delighted to learn that she qualified for a 20% discount by paying upfront, resulting in substantial savings.
Optimizing Resources: The Medical Concierge Desk
Many health sharing plans offer a medical concierge desk, a valuable resource that members can utilize to navigate the healthcare system effectively.
These professionals can assist in finding in-network providers and obtaining cash payer discounts, simplifying the process and enhancing overall savings.
Negotiating Power through Pre-Approvals
Health sharing members can further maximize their savings by seeking pre-approvals for medical procedures.
By securing approval from their health sharing plan for specific treatments or services, members can ensure that costs are eligible for sharing. This proactive approach helps avoid unexpected expenses and guarantees they receive the benefits they anticipate.
Case Study: The Comprehensive Approach to Savings
Let’s explore a case study that exemplifies a holistic approach to saving through transparency, cash discounts, and pre-approvals.
Susan requires a non-emergency medical procedure.
She researches pricing transparency and identifies a suitable healthcare provider that offers competitive rates.
- Cash Payer Discount.
By inquiring about cash discounts, Susan secures a 20% reduction in the procedure’s cost, amounting to significant savings.
- Medical Concierge Desk.
Susan takes advantage of her health sharing plan’s medical concierge desk, receiving guidance and assistance in coordinating the procedure and ensuring it meets sharing criteria.
To mitigate uncertainties, Susan obtains pre-approval from her health sharing plan, assuring sharing eligibility. This prevents unexpected expenses and guarantees she receives the benefits she anticipates.
Embracing transparency, cash payer discounts, and the power of financial tools offers health sharing members an impressive avenue to savings.
By adopting a comprehensive approach to healthcare, individuals can not only navigate the system with ease but also secure significant cost reductions.
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Conclusion: Key Takeaways and Next Steps
Throughout this discussion, we’ve explored the financial advantages of health sharing and Health Savings Accounts (HSAs) for small business owners and the self-employed.
Here are the key concepts to keep in mind:
- Maximize Tax Savings: Health sharing and HSAs offer significant tax savings, not only on income but also on payroll taxes. Utilizing these financial tools can reduce healthcare costs by a substantial percentage.
- Transparency and Cash Discounts: Recent healthcare regulations have ushered in an era of transparency in pricing. Health sharing members can make the most of this transparency to make well-informed decisions. Cash payer discounts can also lead to substantial savings.
- Comprehensive Planning: Leveraging the medical concierge desk and pre-approvals enhances the overall healthcare experience and ensures that costs are eligible for sharing.
Free Consultation to Find the Best Health Sharing Plan
Click here to schedule a free consultation, analysis, and quote with an HSA for America Personal Benefits Manager. They will guide you through the process and help tailor these financial strategies to your unique needs.
Here are some additional blogs for further reading: Escape From Healthcare Narrow Networks: How You Can Finally Choose Your Own Doctor! | Best Health Insurance for the Self-Employed | Using Your HSA for Transportation Expenses: A Comprehensive Guide | How to Combine a DPC Membership with a Health Sharing Plan | The Small Business Owner’s Guide to Starting a Section 125 Cafeteria Plan