Insurance12

Question 1

Tax Treatment of Personally Owned and Group Health Insurance

Answer 1

Medical Expense Policies for Self Employed Persons and Partners
■ Self Employed
–– Deduct premiums if have a net profit from business
–– Not covered by a group policy
–– Benefits not taxable
■ Partnerships
–– Premiums deductible for partnership
–– Premiums are income to partners
–– Benefits not taxable

Question 2

Business Disability Insurance

Answer 2

Health Savings Account—HSA
■ Individually owned medical expense savings account
■ Contributions are tax deductible
■ Withdrawals are tax free
–– Used to pay qualified medical expenses
■ Must have a high deductible health plan
■ Account values accumulate from year to year

Question 3

Medical Savings Account—MSA

Answer 3

■ Employed by small employer
–– Less than 50
■ Self employed
■ Contributions deductible
■ Must have high deductible health plan
■ Values accumulate from year to year
■ Tax free withdrawals
–– Used to pay qualified medical expenses
■ New plans not allowed after 2006

Question 4

Health Reimbursement Accounts—HRA

Answer 4

Established by the employer
■ Employer contributions are pretax
■ HDHP not required
■ Employee can use money in the HRA to pay deductibles, coinsurance and co-payments
■ Money rolls over from year to year

Question 5

Flexible Spending Arrangement—FSA

Answer 5

Employee authorizes employer to reduce employee’s salary
■ Employer puts the money into FSA account
■ Withdrawals by employee are not taxed
–– Only certain approved benefits
■ Spend it or lose it