Normally, individual taxpayers can deduct medical insurance premiums against their income when filing their tax returns. But while health sharing is a lower-cost alternative to medical insurance, they are not insurance plans themselves. And so your contributions to a health sharing ministry or program don’t qualify for the same tax treatment.
However, many people choose to join a health sharing ministry organization because the monthly contribution is up to 50% lower than paying for a traditional health insurance plan, even after accounting for the tax deduction.
This is especially true if you don’t qualify for a premium subsidy under the Affordable Care Act.
Background – What is a Health Sharing Ministry?
Health sharing ministries are nonprofit organizations that facilitate the sharing of qualifying medical expenses among members. Members pay a monthly, quarterly, or annual contribution to the ministry. If they have a qualifying medical expense, they submit the bill to the ministry, and the other members help pay that expense.
There are many health sharing ministries and organizations in operation today. Here are some of the most prominent:
- OneShare Health
- MPB Health (Formerly MPowering Benefits)
- Altrua Healthshare
- Zion Health
- Universal HealthShare
- Liberty HealthShare
- United Refuah HealthShare
- Samaritan Ministries
More details on each of these organizations are available here.
Is Health Sharing Worth It Even If I Don’t Get a Tax Break?
For many people, the lower monthly out-of-pocket expense that health sharing ministries require compared to traditional commercial health insurance companies is more than worthwhile. Health sharing ministries frequently charge up to 50% less in monthly contributions than traditional health insurance companies charge in premiums.
Example: According to data from the Kaiser Family Foundation, a family health insurance plan now costs more than $22,000 per year without an Affordable Care Act subsidy. For a self-employed family in the 25% effective tax bracket, that still amounts to a net annual after-tax cost of $16,500 in out-of-pocket premiums.
A family with an effective tax bracket of 25% that joins a health sharing ministry and pays a contribution of $11,000 per month realizes before-tax savings of $11,000, and after-tax savings of $3,500 per year.
Furthermore, the family enrolled in the health sharing plan may have more flexibility in choosing their doctor: Health sharing ministries generally don’t impose network restrictions, which are common in HMO and PPO plans in the traditional health insurance market.
Premium savings are effectively reduced by any premium subsidies received under the Affordable Care Act or American Rescue Plan Act. But families that are cost-sensitive and that earn too much to qualify for an ACA subsidy routinely enjoy significant savings in annual costs, even though contributions to health sharing ministries are not tax deductible.
Tax treatment of health expenses in general
To understand how health sharing is treated under the U.S. Tax Code, it’s important to understand how the law defines and treats medical expenses, including health insurance premiums, in general.
Commercial health insurance premiums are treated as a health expense under the federal tax code, and federally tax deductible under certain circumstances.
Specifically, If you itemize your deductions for a taxable year on Schedule A (Form 1040), Itemized Deductions, you may be able to deduct medical and dental care expenses you paid that year for yourself, your spouse, and your dependents – but only to the extent these expenses exceed 7.5% of your adjusted gross income (AGI).
Tax treatment of health insurance premiums in general
If you’re self-employed and report a net profit for the year, you may benefit from taking the Self-Employed Health Insurance Deduction. This deduction is an adjustment to income, rather than an itemized deduction. That means it’s not subject to the 7.5% of AGI threshold. See Chapter 6 of Publication 535, Business Expenses for full eligibility information.
If you’re not self-employed or an independent contractor, you won’t be able to take this deduction.
Should you itemize?
Note: Depending on your situation, you may be better off not itemizing health expenses and other expenses, but electing to take the standard deduction. As of tax year 2021, the standard deduction is $12,550 for single taxpayers, $25,100 for married couples filing jointly, and $18,800 for qualified heads of households.
You should figure your taxes both using the standard deduction and itemizing your deductions, and then file the tax return that’s most beneficial to you.
For complete information on the tax treatment of medical and dental expenses, including health insurance premiums, see IRS Publication 502.
Compare Pricing on the Best Healthshare Plans Available
Health sharing ministries and small businesses
Health sharing ministry contributions and health insurance premiums are treated slightly differently for businesses, as well. From the business’s standpoint, payments for health insurance premiums and contributions to health sharing ministries made as an employee benefit are both fully tax deductible.
However, while health insurance is generally tax-free to employees, health sharing is a taxable benefit for them.
Proposed regulation treating health sharing as “medical care”
The U.S. Department of the Treasury and the Internal Revenue Service have issued proposed regulations under Section 213 of the Internal Revenue Code that would make amounts paid for memberships in a health sharing plan as medical expenses. The proposals would also recognize the costs of enrolling in a direct primary care (DPC) plan as medical expenses for tax purposes, as well.
Under this proposal, the Treasury Department and IRS will interpret “insurance” to include amounts paid for membership in a health sharing plan, under IRC Section 213(d).
This would make a person’s health sharing membership even more affordable, enabling more people to protect themselves from high medical expenses. The Biden Administration, however, does not appear to support this rule, so it is not being implemented at this time.
More questions on the tax treatment of health sharing ministry contributions?
This is simply a brief overview and does not delve any deeper than the surface.
If you have questions about your own situation, I recommend asking your CPA what they would think about you taking this deduction, and getting their professional opinion.
For more information about health sharing plans and to learn about the plans we most often recommend, visit our Healthshare Plans page. There you can get an instant quote, and even sign up online.
HSA for America has helped thousands of people find more affordable quality healthcare since 2004. Contact us if you would like free assistance from professionals who can really tell you what your best options are.
Here are some additional articles on health sharing ministries and related subjects.