What Your CPA Wants You to Know

74. Health Insurance Options For Business Owners

• Carson Sands, CPA & Teran Sands, MBA. • Episode 74

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Forking over $31,200 yearly for health insurance as new entrepreneurs sounded like a financial nightmare. That was not in our budget when we started our business years ago. We did some research and stumbled upon the world of health sharing plans.

We know if you're starting a new business, health care has likely crossed your mind!  In this episode we explain what we did for health coverage when we quit our jobs and what we do today. We share the pros and cons of health sharing plans that can save you money if you are on a tight budget in the beginning. 

 

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Speaker 1:

Well, we recently also quoted traditional insurance. Now that our business is more stable and we could commit to something a little bit more expensive and for a family of five so it's us two and our three children it would be about $2,600 a month for traditional health insurance. So we would be paying $31,200 a year for health insurance. So we would be paying $31,200 a year for health insurance.

Speaker 2:

And that was for the cheapest or one of the cheapest plans through just the marketplace. Welcome to what your CPA Wants you To Know.

Speaker 1:

Tax and accounting help can be expensive, so we've created this podcast to help guide you through it all and make you feel like you have a CPA in your back pocket.

Speaker 2:

I'm Carson Sands.

Speaker 1:

And I'm Taryn Sands.

Speaker 2:

I'm a CPA with over 10 years of experience helping people start and grow their businesses.

Speaker 1:

And I'm an MBA with a specialization in marketing and entrepreneurship. Taxes suck and we want to make sure you don't pay more than your fair share.

Speaker 2:

We're here to share everything your CPA wants you to know in a fun and easy to understand way. Let's get started.

Speaker 1:

Let's do it Today. We're going to answer a question that we get all the time. I'm actually surprised that we don't already have an episode about this, but this is all about health insurance as a business owner and what we do for health insurance.

Speaker 2:

So who do you think people hate? More health insurance providers or the IRS?

Speaker 1:

I don't know. I think they're both pretty rough about right now.

Speaker 2:

Probably depends. If you're sick and you need to use your health insurance, you probably hate them the most on that day, and when it's time to write a check to the IRS, you probably hate them the most on that day.

Speaker 1:

Yeah, that's, that's probably right. Every time I sit down to pay taxes is when I think about it, so it's not like an all year thing, but it makes me mad every time I have to pay like a large amount.

Speaker 2:

Me too.

Speaker 1:

So every new person that comes to us when they are looking to start their business and specifically eventually quit their job to be full-time self-employed, they always ask about health insurance.

Speaker 1:

So many years ago, when we started our business, this was one of the things that we were looking at too what are we going to do when we both quit our jobs and we lose our health insurance? So we went through this whole thing just like many of you probably are, and we realized quickly that we could not afford traditional health insurance, especially since we had no idea how much money we would be making from our business. I think at the time when we priced it out, it was about $1,900 a month that we just really could not commit to. So we looked into a lot of other things just to be like what could we do? Just for a short time, until we got on our feet. Our business had going and then, maybe some point, we could switch to, you know, a regular insurance plan, and that's when we came across a health sharing plan. So, to answer that question, we use a health sharing plan from the beginning and we're still on it now, which has been like the last seven years.

Speaker 1:

Yes, that's right beginning and we're still on it now, which has been like the last seven years. Yes, that's right. First and foremost, if you have never heard of this, what is a health sharing plan? So, health share plans are arrangements where a group of individuals come together to share in each other's medical expenses. Members and these plans contribute a monthly share amount which is then used to pay for eligible medical expenses of other people in the group. So, just like traditional insurance, you're paying a monthly amount it's not called a premium, but it's set up very much like that and it all goes into a fund of everybody in this sharing plan and then that money is used to pay medical bills. Sounds awesome, right?

Speaker 2:

Does sound awesome.

Speaker 1:

There are, unfortunately, some cons associated with using something like this and, obviously, some pros. So we're going to go over the pros and cons of using something like this, why we did it, and just our thought process behind this type of plan. Now, first, the absolute biggest pro in this whole thing is the cost. So it is significantly cheaper than traditional health insurance, which is why we used it initially, because that was really all that we could afford.

Speaker 2:

Right and that should always be number one with insurance of any kind is what is the cheapest option that covers what I need covered? Now I didn't say what's the cheapest option. I said what is the cheapest option that covers what I need covered? Now I didn't say what's the cheapest option. I said what's the cheapest option that covers what I need covered?

Speaker 1:

So, just to give you an example, I said that at the time it was about $1,900. Well, we recently also quoted traditional insurance. Now that our business is more stable and we could commit to something a little bit more expensive, and for a family of five so it's us two and our three children it would be about $2,600 a month for traditional health insurance. So we would be paying $31,200 a year for health insurance.

Speaker 2:

And that was for the cheapest or one of the cheapest plans through just the marketplace.

Speaker 1:

Yes, and it also had a very high deductible. So if you compare that to the MediShare health sharing plan that we are on and have been on, that would be $358 a month for a family of five and you're basically max out of pocket is what most people would be familiar with, but what they call it is your annual household portion is kind of like your max out of pocket is $12,000. So we're on a $12,000 annual, so we would pay everything until we hit the $12,000. For a family five is only $358 per month. So we're only paying $4,296 a year, which is significantly cheaper than that $31,000.

Speaker 2:

And you can think of that annual household portion as a deductible. They don't call it that because they're not insurance, they're not allowed to use those words, but that's basically what it is. And if that sounds high to you, also, keep in mind, before we were done having kids, we kept an annual household portion of 6,000 instead of 12,000. And yes, our premium or they call it a monthly share, but it's a premium and it was basically about $600 per month. So even then it was still very inexpensive and with a fairly low deductible in today's market.

Speaker 1:

And I think if you're using a plan like this, you just have to get used to paying for everything. So during sick season I might take the kids to the doctor many times in one month. Say, I went four times or something and it's usually $125 or less when I go to a sick visit. Does that sound like a lot of money? Yes, that's a lot for one visit. However, even if I'm paying that four times, that's significantly cheaper than my monthly amount. I would be paying on health insurance and we've just gotten used to paying that cash pay and generally when we tell them that we're cash pay, then there's a much lower price.

Speaker 2:

But even if you paid $125 per month, which no one would but if you went to the doctor every month with all three kids, you would spend $375 at the doctor, plus $358 for the MediShare monthly payment, plus $358 for the MediShare monthly payment, and that's still significantly cheaper than just the insurance alone, which still has co-pays. They're just smaller than $125. So you're saving a lot of money. Even if you actually go to the doctor and, of course, if you're healthy and you don't have to go, you save a ton of money.

Speaker 1:

Yes, exactly. So the biggest pro here is the price, first and foremost. And then this is going to be for healthy individuals, and we'll get into that a little bit later on the cons but this is for healthy younger people. We signed up at a really great time and then a lot of things are actually lower costs, surprisingly, because you are able to negotiate with the cash pay prices. So I just had to get used to doing this. But since we've been doing that, the prices that we're paying for even something like a CT scan, are just not that expensive. If you're going into it as a cash pay price, which is another point we would like to make is that because it's not traditional insurance, you technically are uninsured. So those are all the pros to having some sort of health sharing plan. But let's talk about the cons. Why would you not want to use something like this?

Speaker 2:

So the biggest one and it ties into the main reason why MediShare and other cost sharingsharing options are so much cheaper is that they do not cover pre-existing conditions. Now, one of the laws that changed in the last I don't know decade or so that made insurance so expensive. Is that true? Health insurance is required to cover pre-existing conditions. This is absurd to me, but it's the reason why insurance is so expensive. Can you imagine how expensive your homeowner's insurance would get if they allowed you to get it after your house had already burned down? That's essentially what they've done with health insurance. You can wait around, get some cancer and then go get some health insurance, and they have to pay for it. So it's pretty silly the way they set it up. But that's the reason. Cost-sharing plans, since they're technically not insurance, do not have to cover pre-existing conditions and they do not.

Speaker 1:

So if you have one, this is not a great option for you. Exactly that's probably the biggest downside of these plans is that they don't cover certain things, and pre-existing conditions is a big one. Now, if you don't have pre-existing conditions and you're still thinking, this is a great thing for me to look into. It is good to know that every one of these has their different guidelines. So some of the common health sharing plans is MediShare, which is what we're on. There is Liberty HealthShare, samaritan Ministry and Sedera in one share. So those are the big ones. I don't know a lot about all of them, but we do know. On MediShare, they do not cover routine expenses. So, for example, if you generally go get a checkup once a year, they don't cover that. And do you want to explain why they don't?

Speaker 2:

Yes, so they follow kind of a biblical principle of health sharing, and so anything that is known beforehand, like an annual screening or mammograms every five years or whatever it is that you should know about beforehand, that should be budgeted for and covered by your own pocketbook, own pocketbook. They don't cover things that are expected. They cover things that are unexpected. You break your leg, you get an illness, and if it goes over your annual household portion, then that's when it kicks in and they cover the rest. So that's the reasoning behind not covering things like mammograms and screenings and different things like that, you know. It turns out, though, as Taryn mentioned earlier, that some of those things aren't very expensive. When you're cash pay and you go to a private scan clinic or something like that, it can be very inexpensive. When you're cash pay, they just they know how to bilk the insurance companies for every penny, and then, whenever you see it on the insurance bill, it's a lot higher.

Speaker 1:

Yeah, I think it's more of just like in your head. You think, oh, I'm going to have to pay this and this and I think even people don't like high co-pays but if you're really thinking about it, oh, I'm going to have to pay $75 to get my blood drawn for this routine procedure. That's not really that much to have to pay out of pocket if you're considering the two prices of what you're actually paying and what you're getting. So I think it's just something that we've been told over and over again and it's you have to get used to a new way of doing things.

Speaker 2:

And if you have to go pay $600 out of pocket to get a mammogram, keep in mind your $600 plus your monthly amount that you're paying to the cost sharing is still going to be less, probably than what you'd pay in monthly premiums for traditional insurance.

Speaker 1:

Yes, that's the point I'm trying to make is that, yes, things might get expensive on a random month, that you have a bunch of stuff pop up unexpectedly, but it still won't be more than a premium you'd be paying for, like Blue Cross, blue Shield. Now, another downside to these is that a lot of them are religious. So if you aren't a Christian, you can't be in the Christian healthcare ministry and certain things like that. There are some that are not Christian, there are some that have other stipulations, but all of them are based on some specific values for that group.

Speaker 2:

Yes, for example, with MediShare they ask you certain questions that may feel a little invasive. They ask you if you attend church and they ask you if you smoke. If you smoke you cannot be on the plan. And they ask you if you drink excessively and things like that. And I think all health insurance people ask those questions. But other health, you know, traditional health insurance if your answer is the wrong answer to any of those, it just means your premium will be higher. But with MediShare and probably many of the other cost sharing options, that if your answer is the wrong answer, it means you can't have it at all. So that's something to keep in mind.

Speaker 1:

Another thing that comes up is people want to know are these types of plans tax deductible?

Speaker 2:

That is another one of the drawbacks. Technically they are not deductible for tax purposes, unlike health insurance, which you can deduct, and that also lets you have HSAs, which are great ways to save on taxes. None of those are options. If you use a health sharing plan, the tax savings you would get from those aren't worth paying a much, much higher premium. But if, for some reason, you're not eligible for cost sharing, of course you should use those other available options to save on taxes to help offset that expense some. But just know that you are likely going to be giving that up. The cost sharing ministries and various cost sharing options are fighting with lobbyists to get HSAs available and get tax deductions available for their programs, but I doubt that their lobbyists are as well funded or as talented as the health insurance lobbyists, so we probably won't see any movement on that.

Speaker 1:

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Speaker 2:

Another one of the potential drawbacks with cost sharing and specifically we've experienced it with Metashare is that there have been some places we've needed to go that aren't covered by MediShare or they don't support MediShare, and so that doesn't mean that you have to pay out of pocket. It means that you have to submit your medical bills to MediShare in order to get reimbursed for those, and it can become like a full-time job. Taryn has had heck with getting reimbursements from MediShare on things that and when we went to places where they didn't just accept our MediShare card and bill MediShare directly.

Speaker 1:

Yes, if that is a hospital or something that does not process MediShare specifically, then it does make it quite a nightmare. If they do process it, it feels not any different than traditional insurance. You give them your card, they tell you how much it's going to be, and then they process everything and it shows up on your AHP and you know how much is going toward your out-of-pocket. But we have had a few things that I had to process myself and it is a lengthy process. It takes quite some time and it is a real pain in the ass. I still wouldn't rather pay $2,600 a month for insurance, but it's just a pain to have to deal with it Now. I know that that also happens sometimes with insurance, so it's.

Speaker 1:

I don't know. It happens both ways.

Speaker 2:

I've heard so many horror stories with that too, but it feels like with traditional insurance there are so many fewer options now that I don't think it happens as much, because it seems like almost everybody with traditional insurance is either on United or Blue Cross. Um, and those are accepted, I would guess just about anywhere, but it has happened with other private insurances in the past, just like it could happen with cost sharing, so it's not yeah, I don't necessarily mean them not processing it.

Speaker 1:

I guess I just mean extra paperwork. I've heard of a lot of people having to submit so many things just to get them to accept a procedure or surgery or something like that.

Speaker 2:

Oh yeah.

Speaker 1:

For MediShare, you are technically allowed to see any doctor of your choice. So I mean that is a pro for sure, but that doesn't mean that you won't have to do some extra legwork to get it done.

Speaker 2:

And if that specific place doesn't accept MediShare, then when you submit your bills they might not be fully reimbursed because they might say no one of the reasons that place dropped us is we only reimbursed this amount and they charge that amount for that procedure. So we'll cover the 12,000 that we normally will pay for that, but they're charging 17,000. The other 5,000 is on you.

Speaker 1:

Yes, exactly. So, as you can see, this is definitely not a perfect situation and we haven't found anything that we thought would be better for our family. I think at this point we feel like we have prepared ourselves If something big did come up. We have the entire out-of-pocket saves and then hopefully nothing like that happens. But if it does, then MediShare would cover a significant event I'm thinking car wreck, something like that. I know I have specifically spoken to someone that did cancer through one of these and they actually have a team dedicated to you if you're going through cancer, so that is one benefit to it.

Speaker 2:

And one of the reasons we had the problems with somebody not accepting it was because we well, just, I'll be specific we went to the Mayo Clinic and you know, after going to those specialized places that are supposed to have better diagnosticians and better doctors and all this stuff, we found that that's pretty much not the case and that it's a waste of money and time. So in the future we'll just always be going somewhere that processes MediShare, so that this won't be an issue again.

Speaker 1:

Yes, and then just locally, like if our kid were to break their ankle or something and we needed to go to a hospital, we know which ones around us would process it, so we would try to go there, obviously so that I wouldn't have to do extra paperwork. But if I did, that would be fine if it was necessary. One additional thing that I've seen just in the last couple of years is that so many people are using these health sharing plans that the customer service for MediShare, specifically, has really really been impacted. So they are not processing bills as quickly, they're not getting back to you as quickly, and that's pretty frustrating, considering we've been using it since 2017 and it was not like that in the beginning. So I know they're trying to do something to correct that, but that is something that has been frustrating lately with this.

Speaker 2:

It's always a balancing act because it is a nonprofit health sharing program, and so every single person they hire they're going to have to raise premiums because they're you know, obviously they're only charging what they need to cover all the medical expenses and the staff that process things from the hospitals and so forth, and so if they hire new people to provide better customer service, all of our rates go up. So they have to try to keep a balance on that, which I think we can all understand. I think we would all like maybe to pay I don't know $30 more a month each and get a few more people down there to help us, though $30 more a month each and get a few more people down there to help us though?

Speaker 1:

Yeah, I think so, but medical in general, and then insurance just as a whole, is just not a great system. So this is definitely something to look into. If you're in the position that we were, you're starting your new business, and especially if it's just like you and one other person, like we have, then this is a great inexpensive option that you could use in the meantime until maybe you wanted to switch, or maybe, like us, you decide that you like this well enough that you'll just stick to it, and maybe forever, I don't know.

Speaker 2:

Exactly, and we do want to touch on the other options for self-employed people, because that's kind of what we're gearing this towards. If you have a W-2 job, or your spouse does, and you're eligible to be on their health insurance, that's almost always going to be the best option for you. But if you are self-employed and you don't have the option to get one through a big company and you can't use cost sharing, like we've been talking about for most of this episode, then some of the other options are to get private insurance through an organization that you belong to. For example, there is special groups for CPAs that we can get insurance through that group so that they can negotiate better prices, the way that a large company would be able to negotiate better prices because they have 600 employees versus if you get just one single person insurance. That can be a lot more expensive. So there's ways to get discounts for that, so you might check with your local organization for whatever your profession is and see if there's something available. And then the other one I really want to touch on is marketplace insurance. For some people that's the only option, whether you have preexisting conditions and don't have a plan available at work or whatever, and the preexisting conditions keep you from getting cost sharing options, well then you're probably going to need to go into the marketplace. They will cover your preexisting conditions. It is going to be more expensive.

Speaker 2:

But just do one thing for me Make sure that you do not sign up for the advance monthly premium credit and what that is. It's just whenever you're on marketplace insurance and if your income is low enough, you get the premium tax credit and it's a way of reducing your health insurance expense through a tax break. Reducing your health insurance expense through a tax break? Well, some people get in in advance and that reduces your monthly payment. The problem with that is when it comes time to do your tax return. If your income goes up all of a sudden, you may be completely ineligible for that credit, and now you have to go and pay all of the money that you got as advanced premium credits. You have to pay that on top of your taxes that year, and so that's a problem. So it's better to not take that. Just pay the full amount of the premium, and if you're eligible for that credit at the end of the year, then you'll just get it as a nice refund.

Speaker 1:

Yes, we've seen so many people be burned by that credit. So just make sure, if you go to sign up, re-listen to that part and just get your credit at the end of the year, so that you're not having to pay a lot of money back if something changes.

Speaker 2:

And the only exception I would say to that is if you absolutely cannot afford the premium without that advanced monthly credit and you know that your income won't go up over the prior year, then you can be pretty confident that the credit that's calculated for you will be accurate and you will actually be eligible for that when you file your tax return. But if you get a raise of even you know five to $10,000, it could completely invalidate the whole thing and make you have to pay all that money back.

Speaker 1:

Well, I hope this episode was helpful. We do get this question a lot and it is a lot to explain to someone, so I'm glad we're going to have this episode to direct people to next time we get this question. If you want to know anything else about Metashare or any of the other ones that we talked about, I'm going to list those in the show notes and, until next time, thank you so much for listening to.

Speaker 2:

What your CPA Wants you To Know Podcast what your CPA Wants you To Know Podcast. This podcast is intended to provide accounting and tax information for educational purposes only. All tax situations are unique and should be handled with the assistance of a tax professional.