July 6, 2014 by Tony Novak
This question came after a reader saw the profile article of my work in health care reform in this month’s New Jersey CPA magazine (page 39 of July/August 2014 edition). Husband an wife small group insurance plans will be mostly eliminated in this state by the end of 2014; replaced by individual insurance plans.
Q: Last year I obtained my health insurance through a business with my wife under a separate business EIN, putting us down as 2 partners and members of a group. Blue Cross now tells me that under the new law I can’t do that, so on my renewal date I need to think of something else. My goals are first to preserve the business deductibility of the expense, and second to obtain the lowest cost. Any ideas? Do you know where in the law it says a husband and wife can no longer constitute a group? I do not understand the public policy goals behind such a change.
A: You are not alone. H&W businesses are the first target of NJ insurers hoping to cut claim exposure. Their logic is that if you went through such efforts to set up a group plan when individual insurance was available, then you must have serious long-term health problems motivating you to do so.
Group eligibility requirements were not significantly impacted by ACA. Insurers have always been able to define, more or less, which categories of businesses they want to accept. Even before reform, many did not accept H&W businesses without proof of wage taxes and worker’s compensation insurance being paid on the spouse.
Deductibility is not threatened. The self-employed health insurance deduction (http://www.irs.gov/uac/Newsroom/Dont-Miss-the-Health-Insurance-Deduction-if-Youre-Self-Employed) will likely take care of most of it.
Post-reform coverage through the NJ individual health insurance exchange is typically judged as lousy compared to the pre-reform group plan you had before. That assessment is based on what’s not covered: a higher deductible and higher co-payments. Certainly out-of-pocket risks are higher but there is also some additional coverage built into the new plan that are not so visible. The price is not anything we can manipulate; it is higher and we just have to live with that. This new individual insurance is likely the only viable option for you at this time. Horizon BC/BS seems to have a lock on the local market now. UnitedHealthcare is coming for 2015 and that would be my offhand preference. AmeriHealth New Jersey and Health Republic Insurance of New Jersey are the other options. The first has a poor consumer reputation IMO. The latter is a brand new co-op so we know little about them from a customer satisfaction perspective.
You can check out the details through the federal site Healthcare.gov (that is best for those who qualify for subsidies) or a private insurance exchange (that typically gives better customer service). My FreedomBenefits.net business is linked to Members Insurance Exchange that I endorse for compensation but am not otherwise affiliated with the insurer or the exchange.
Finally, consider that it might be advantageous to preserve some of the benefit of deducting the full costs of benefits – including out-of-pocket costs – by treating a spouse as an employee under an integrated Health Reimbursement Arrangement and/or Health Savings Account. Freedom Benefits provides sample plan documents and administrative tools free of charge to those using the individual or group insurance exchange to enroll for coverage for one or more employees. You may conclude that a partnership is not the best format for this purpose and that a regular C corporation is better. We promote a handful of strategies that can be used to maximize the net tax-free health care benefits (including cash build-up for future costs) that can be provided in a small closely held business.