Small businesses are under pressure to provide low-cost healthcare solutions to their employees in today’s dynamic healthcare environment. Amongst the reasons why certain small businesses are looking for other alternatives is the pressure from constantly increasing healthcare premiums, multifaceted insurance regulations, and the cost of maintaining traditional health insurance programs. Health-sharing programs may be one innovative alternative through which the cost to meet healthcare needs is affordable and saves on taxes significantly.
So, let’s take a look at the tax benefits of small business health sharing, how health sharing works, and why it has become an attractive option for small businesses trying to reduce the cost of healthcare while providing high-quality care to employees.
What is Health Sharing?
Health sharing, otherwise known as a healthcare sharing ministry or Health Share plan, is a form of agreement where the members contribute towards a shared pool of money for covering medical bills. Generally, such plans are faith-based or community-based in nature, since their members share common beliefs or values. In contrast to paying insurance premiums to an insurance company, participants pay monthly contributions, sometimes referred to as “shares,” to a pool that is used to pay for eligible medical expenses of members who are in need.
Health-sharing plans, though technically not qualified as health insurance under the law, are generally very similar in what they cover, including doctor visits, hospital stays, and prescriptions. Because they are exempt from the regulations governing other types of insurance, health-sharing programs are often easier to understand and also much cheaper. Health-sharing plans can be a great option for small businesses that seek alternative ways of addressing healthcare.
How Do Health Sharing Programs Benefit Small Businesses?
A small business is therefore left to strike a thin balance between the need to provide health coverage and the financial constraints facing the business. Health sharing offers several benefits to small business owners, including:
- Cost: Health-sharing plans are less expensive than health insurance. They allow small businesses to keep offering healthcare benefits free of expensive premiums.
- Customizable plans: Health-sharing organizations provide customizable plans for the needs of employees, thus enabling small businesses to have a form of flexibility on what to offer.
- This is an attractive employee benefit: Providing a health-sharing option is one of the key ways in which it can make a small business attractive to potential employees who value having affordable and community-based healthcare.
Even though these operational benefits are attractive, the tax benefits of health sharing for small businesses may well be one of the most compelling reasons to consider this alternative.
Tax Deductibility of Health-Sharing Contributions
One of the most important tax benefits of sharing health costs for small businesses is that contributions made to those plans can be tax-deductible. The contributions that a small business may be making to an employee’s health-sharing plan can become a tax-deductible business expense. That definitely means that the contributions that are made by a small business would reduce taxable income, thus resulting in significant tax savings.
To take advantage of the benefit provided, such a health-sharing plan must also be considered a business deduction under IRS standards. While technically not insurance, a large percentage of businesses have been successfully able to make deductions for their contributions by structuring them in ways similar to that of structures for insurance premiums.
Self-Employed Health Sharing Deductions
In addition, there are specific tax benefits for the small business owner who is self-employed. Self-employed people frequently can deduct contributions to a health-sharing program under the self-employed health insurance deduction. For self-employed business owners, this facilitates lowering taxable income by the cost of health insurance or health share contributions.
It is worth not that this loss is applicable only if the business person does not qualify for an employee or spouse’s health plan. Health-sharing contributions of self-employed small business owners have more potential because of the possibility of large tax savings that can help one deal with health costs easily.
Health Savings Accounts (HSAs) and Health Sharing
While health-sharing plans are not considered compatible with HSAs by the current IRS regulation, they still allow them to provide some tax-saving possibilities. HSAs are tax-advantaged savings accounts that enable their owners to save money for present and even future medical expenses and contributions to them are tax-deductible. To be eligible for HSAs, though, the participants should have a high-deductible health plan (HDHP) that health-sharing plans do not satisfy.
While that choice is still there for the small business employer, flexibility is increased through tax-preferred savings plans, including the FSA or HRA, to supplement a health-sharing plan and maximize tax savings.
Lower Net Tax Payable
Health-sharing programs offer lower overall healthcare costs, which in turn may lower a small business’s tax liability as a whole. While traditional health insurance plans can make the business pay a lot on premiums, health-sharing programs have lower monthly contributions and, therefore, give more extra resources to the business. The healthcare expenses are lowered by health sharing, so more can be put toward the growth or investment of that business in other areas that improve its tax position.
As a given fact that health-sharing programs are a different rule than traditional health insurance, they afford more flexible means through which funds may be allocated. Small businesses can, hence manage to take charge of their healthcare costs and manage tax liabilities more effectively.
Tax Benefits to Employees
In addition to the above advantages to small business owners, health-sharing plans also hold tax advantages for employees. In some states, employees can claim their health-sharing contributions as a medical expense on personal returns. This is only when through an IRS set recommendation, certain thresholds and limits are met but still present an opportunity for employees to reduce their taxable income by showing the amount of medical expenses paid through health sharing.
Conclusion
To small businesses seeking low-cost, flexible health care, Health-sharing programs offer tremendous value with many advantages including significant tax benefits. Actually, health-sharing provides an alternative to the traditional health insurance. It allows a small business to save on healthcare costs at the same time saving a certain amount in overall taxes. In saving, one may save on deductible contributions, direct self-employed health-sharing deductions, or employee tax benefits It’s a bunch of tax benefits that health-sharing might be looking forward to.
