Health share comparison  - Are health sharing payments deductible?

Are Health Care Sharing Payments Deductible

 

This is a question that comes up often with health care sharing plans like OneShare.

 

Let's walk through this question and figure out how to incorporate the answer in our cost calculation.

 

This definitely affects the real cost when comparing health sharing and ACA health plans.

 

We'll walk through an example below.

 

These are the topics we'll cover:

 

• Tax deduction for health insurance versus health sharing
• Can a person deduct health care sharing payments
• The after-tax cost of health care sharing versus health insurance
• Examples of tax credit effect on health care sharing versus ACA health plans

 

You can quote health sharing plans here:

 

 

Let's get into it.

 

Tax deduction for health insurance versus health sharing

 

This is primarily a question for self-employed people with income outside of w2.

 

For self-employed people, there's a deduction for ACA qualified health insurance up to 100% of the premium (assuming we have net income to cover this).

 

Meaning...if you have a loss, you can't get a credit or refund for the health insurance premium piece.

 

This deduction also applies to health insurance premium for dependents on the same 1040 tax form.

 

This deduction for self-employed health insurance has always been a strong selling point for getting coverage.

 

If you get a tax credit through the exchange, you only write the part that you pay.

 

Your out-of-pocket for that year's self-employed health insurance.

 

Get more guidance on the self employed health insurance tax deduction here.

 

Learn all about health care sharing plans are different from ACA health plans.

 

So...what about health care sharing ministry plans?

 

Can a person deduct health care sharing payments

 

There are rumblings in Congress but currently, you cannot write off payments towards health care sharing plans.

 

This applies to self-employed people as well just to be clear.

 

Technically, the IRS rules states that it must be qualified health insurance and health care sharing plans are not insurance.

 

They are memberships where members "share" healthcare expenses via a health care sharing ministry.

 

You can learn all about this here:

 

• What is a healthcare sharing ministry?
• Is a health care sharing plan worth it?

 

For our discussion, you can't deduct payments made to healthcare sharing plans.

 

The after-tax cost of health care sharing versus health insurance

 

Why does this matter?

 

If you're self employed (most likely if asking this question), then you know the power of before and after-tax dollars.

 

The two biggest reasons people choose healthcare sharing plans are:

 

• Cost can be significantly lower than an unsubisidized bronze ACA plan
• People are outside open enrollment and don't have a special enrollment trigger

 

As for the latter, some states banned short term health insurance and health sharing may be the only option.

 

The tax deduction affects the first piece...cost.

 

Real cost.

After tax cost.

 

If the average tax bracket is around 20%, that's a big deal.  

 

On top of that State and Local taxes also share in this deduction.

 

That probably puts you closer to 30% in a high State tax area like California.

 

That being said, many self-employed individuals now have the 20% deduction which is an offset.

 

So...the net reduction in real, after-tax dollars is probably close to 20-30% for this self-employed deduction.

 

You can quote health sharing plans here:

 

 

You can quote ACA health insurance plans here:

 

 

Let's now compare examples of how this might work versus health sharing plans.

 

Examples of tax credit effect on health care sharing versus ACA health plans

 

Let's look at actual examples.

 

Again, these apply to self-employed people since they are potentially eligible for the tax credit.

 

Let's assume the following:

 

• ACA bronze plan - no tax credit:  $500/month for single person
• Health Sharing plan - 5000 MSA - $250/month for single person

 

The difference is $250 month between the two.

 

Albeit, there are big differences in terms of what they cover as health sharing plans are more catastrophic-designed plans on average.

 

Check out ACA health plans versus health sharing plans for more detail.

 

Let's figure in the tax deduction piece now.

 

IF you're self employed with positive business income, you may deduct 100% of the $500.

 

If we assume a tax bracket of 20%, that's roughly $100 in real after tax savings.

 

Taking this into account, we're now comparing $400 ACA health plan versus $250 for the health sharing plan.

 

This is just an example but you can look at your particular situation with the following.

 

You can check out all the rates including their more catastrophic plans here:

 

Run your ACA health quote here:

 

 

For self-employed people, make sure to look at your net income (AGI on the 1040) since can really drive a big tax credit. 
 

Of course, we're happy to help with any questions either way!

 

Please let us know if any questions come up.

 

It's new to many people so we're happy to walk through any questions!

 

Also, see a comparison of health sharing plans and our analysis of the best health sharing ministry plan here.

 

Make sure to learn about the differences between health sharing plans and Obamacare.

 

We're happy to help with any questions.

 

There is ZERO cost for our assistance!

 

Again, there is absolutely no cost to you for our services.  Call 800-320-6269 Today!