ASSOCIATION
HEALTH INSURANCE
President Obama’s 2010 health-insurance reform legislation is expected to significantly impact most health insurance coverage and related costs as it's phased in over several years.
Prior to these changes, most Americans had access to health-insurance coverage, but many felt they couldn't afford it, including many start-up traders. Plus, in some states insurance companies were allowed to deny too many types of coverage. For some people, self-insurance and gambling on paying their own medical expenses was the only option.
Health-insurance reform changes things. Coverage is no longer optional; it’s mandatory on all but the smallest companies and on all individuals who can afford it, according to the government. If you decide to skip paying for insurance coverage, you will be charged a stiff health-care penalty in the form of a tax on your annual income tax return.
Some traders will like these changes and others will not. Some traders are young and just starting to work, others are newly unemployed, or in general financial distress. They may appreciate the redistribution of subsidies under health-insurance reform. They can get the coverage they need without spending much at all.
On the other side of the spectrum, the upper-income may not like these changes because they will be charged with paying for it with a new redistribution tax on investment income.
Per RIA, “Medicare payroll tax extended to investments. Under current law, the Medicare payroll tax only applies to wages. Beginning in 2013, a Medicare tax will, for the first time, be applied to investment income. A new 3.8% tax (raised from the current 2.9%) will be imposed on net investment income of single taxpayers with AGI above $200,000 and joint filers over $250,000 (unindexed). Net investment income is interest, dividends, royalties, rents, gross income from a trade or business involving passive activities, and net gain from disposition of property (other than property held in a trade or business). Net investment income is reduced by properly allocable deductions to such income. However, the new tax won't apply to income in tax-deferred retirement accounts such as 401(k) plans. Also, the new tax will apply only to income in excess of the $200,000/$250,000 thresholds. So if a couple earns $200,000 in wages and $100,000 in capital gains, $50,000 will be subject to the new tax. Because the new tax on investment income won't take effect for three years, that leaves more time for Congress and the IRS to tinker with it. So we can expect lots of refinements and "clarifications” between now and when the tax is actually rolled out in 2013.”
We determined that trading gains with or without trader tax status, and with any type of tax treatment – Section 475 MTM (securities), Section 988 (forex) or Section 1256 (futures) – is considered investment income for purposes of this new tax.
A goal of our Traders Association is to obtain a group health-insurance plan for our members – to benefit from guaranteed coverage at reasonable rates. Republicans advocated association plans, but Congress skipped that concept in health-care reform. Hopefully, this will change in the future.
Note that HSAs (personal Health Savings Accounts discussed below) are
still an option after passage. I really like my HSA plan!
Updated August 2009 before 2010 health care reform.
Small-business retail traders are often on their own and face challenges
in obtaining mortgages and insurance coverage. Traders often don’t
have fixed base salaries in connection with their trading businesses,
although this can be arranged with a trading entity and payroll. Some
lenders may see through that and others may think it’s just what
they need to satisfy their lending requirements. Institutional traders
often receive rich compensation packages including a fixed base salary
– reported on W-2 tax statements, which lenders want to see for
income verification purposes – plus incentive bonuses based on trading
profits. Institutional traders also receive generous employee benefits
including health, life and disability insurance policies.
Our Traders Association can help traders get loans and insurance coverage.
We plan to organize a Traders Business Alliance, a business-to-business
network of participating lenders, mortgage brokers, insurance companies,
equipment and service providers. We envision crafting business standards
for traders, instituting an association accreditation program (where you
can earn “gold” or other status levels), standardizing the
application process and forging special relationships with interested
vendors. Our Traders Association can arrange discounts on goods and services
using our great numbers of customers too.
Our Traders Association will standardize trading business practices and
reporting to fit the needs of our lenders, insurance companies and other
vendors. Our standard business practices will include risk management,
due diligence, financing and budgeting, business plans, management techniques
and more. We will offer standardized reporting and application letters
to use with each type of vendor. We will have a “members only”
content area for tips on working with our different vendors and special
rules by state and otherwise.
More content to come soon, including details on the benefits mentioned above, participating vendors and more.
If you’re interested in doing business with a large number of qualified small-business trading entrepreneurs, kindly contact us at association@greencompany.com.
Health insurance:
It’s unfortunate that current health-insurance law doesn’t allow association plans. However, Congress and the Obama administration are rewriting health-insurance laws. Hopefully, association plan choices will be one of the new options too. Currently, health-insurance plans are unique to each state and can’t be sold across state lines. Republicans suggest allowing national plans, something our Traders Association is in favor of as well, provided it includes an association plan option. Until we can tackle health insurance changes in Washington and on state levels, our Traders Association will offer resources and content on how to obtain health insurance in your home state. Options include applying for an individual plan, electing temporary Cobra from your ex-employer (generally a more expensive option) or forming an entity and establishing a group plan on the entity (which may cost more but covers pre-existing conditions).
"Cooperative" health care plans are also in the news. Some Republicans in Congress have proposed expanding the use of cooperative health care options in lieu of the more highly contested public option (federal and/or state government health care plans). Cooperatives are not insurance and are not regulated like insurance companies are. Cooperative plans are often referred to as a “shared” self-insurance plan, usually set up for a community of people who fall into the same geographic, ideological, religious, trade or business category. In a sense, a government public option is one big cooperative plan for all taxpayers. However, some people may prefer to pool their risk within a smaller community.
For this reason, we believe a voter-passed state public option plan makes
more sense than a national public option plan. States that want public
plans should allow their voters to have a say on the plan features that
suit the state’s needs. Other states that don't want a public option
shouldn't be forced to enact a national plan. Cooperative health care
plans could be the attractive alternative in these states.
Industry experts suggest it takes over 25,000 participants in a cooperative
health care plan to safely and profitably absorb the administration costs
and risks. Imagine the possibilities of 25,000 online traders paying an
assessment into a “traders” cooperative health care plan each
year, using deductibles and co-pays similar to those from insurance companies,
and having the cooperative pay all health care costs over the deductible
amount. Traders can set their own rules within a cooperative, including
granting leniency for traders during unprofitable years, and requiring
traders to kick in extra reserve money in better years. Cooperatives are
known to save significant amounts for their members by cutting out insurance-company
profit margins, shareholder returns, highly paid executives and even more
administration paper work.
For examples of cooperatives, Google "cooperative health plans."
Leading links include:
Senator Conrad's
co-op health insurance proposal
Group Health Cooperative, Seattle, Washington
Seeking
Divine Protection - washingtonpost.com (church cooperative plans)
Regardless of whether or not Congress enacts health care reform, a Traders Association group plan or cooperative plan may be an attractive option. The association will address health, life and disability insurance for traders and their families.
Older content:
For health insurance coverage, our association can help traders on an individual case-by-case basis.
It’s a myth that smaller companies get lower insurance rates with group plans. Most individual-level plans are priced less than small company group plans because insurance underwriters must cover every employee (and family members) automatically in a group plan regardless of their medical history and problems. In individual-level plans, insurance companies may underwrite each applicant and deny coverage, exclude pre-existing conditions or cover pre-existing conditions at higher rates. This practice varies by state and insurance carrier.
Guaranteed coverage in a group plan is a valuable fringe benefit that companies use to attract and retain employees. Most traders don’t have employees and many will have no trouble getting individual coverage for themselves and family members at prices less than they could arrange for with a group plan. Why pay extra for features of a group plan you don't need? Group plans also offer other key features that may or may not be of value to traders, such as unlimited lifetime benefits and coverage – in many cases never used by most people.
If you have trouble getting adequate individual-level health coverage or if you prefer having the features of a group plan, you can have a group plan, providing you qualify as a business trader. GreenTraderTax.com CPAs can help you determine if you qualify for trader tax status. Click here to learn more about trader tax status.
Another myth is that you need a separate legal entity such as an LLC, S-Corp or partnership for a group plan. That is false. You need a business, and sole proprietor traders qualify. Show our brokers (or your own) your trading business Schedule C (Profit or Loss from Business), D (Capital Gains and Losses) and Form 4797 (Gains on Sale of Business Property, if a mark-to-market trader).
If you're a one-person group, you may have few or no plan choices in your state (it varies by state). If you can save money or get more options by having a larger group, consider adding your spouse, children or others to your company. A husband/wife trading partnership works well here. Click here to learn more about the best entities for traders.
Note if you want to deduct your health insurance premiums, which are a good idea, you need "earned income." The problem is that sole proprietor business traders don't have earned income from trading gains, with one exception: commodities traders who are members of a commodities exchange have earned income from trading gains (IRC section 1402i). As explained on our entities page, a trader can create earned income with an entity by paying themselves a fee for administration.
Note: Insurance varies greatly from state to state, so our general statements above may not all apply to your home state.
An ideal health insurance strategy for many traders is to have a high-deductible individual-level plan together with a new health savings account (HSA). You get all the insurance coverage you need and save lots of money, depending on your expenses. In most cases, you can’t come out worse, but you can come out much better in terms of cost. Learn more about HSAs below.
When you join our alliance, you are entitled to work with our alliance
insurance brokers. We highly recommend this as your first step. Our alliance
brokers will interview you, find out your general medical history (it's
confidential), health needs, goals and more. They will then recommend
your best options. At this time, we encourage traders to use our national
health-insurance site through Fortis (see below) and we are still arranging
for health-insurance brokers in many states. If you are a health-insurance
broker or a trader that wants to recommend one in your home state, please
do.
Every trader and family has different medical histories, needs, concerns
and goals, and when it comes to health insurance, plans offered cover
the gamut and they vary greatly by state.
Our association can not offer group rates to its members
on health insurance
A few years ago alliances and associations were allowed by law to have
their own insurance group plans available to their membership. This was
abused when people who were denied coverage in individual-level plans
joined alliances to get guaranteed group coverage. So the laws changed
and alliances may no longer have group plans for health insurance.
Rather than have a one-person group (also covering family members), it
may be better rate- and tax-wise to hire your spouse and children in your
trading business, or have a family trading partnership. Click
here to learn more about these types of entities. GreenTraderTax CPAs
can also help you with entity formation to execute these and other tax-savings
strategies (retirement plans).
We have been told that if our alliance grows to a large number of members
(around 10,000 members), we may be able to arrange savings on health-insurance
plans through general agents and insurance companies (but still not as
an alliance group health-insurance plan, which is not permitted by law).
Health Savings Accounts (HSAs)
For some traders this may be the preferred solution –
adding an individual-level HSA plan on top of an existing "high-deductible"
(and low-cost) individual-level health insurance plan.
Click here to learn more about HSAs on the GreenTrader Health Benefits
website. Click here for more information about HSAs.
Note: If you want an HSA, you are required to first have an underlying
health-insurance plan in place. Currently, HSAs are only available for
individual-level plans. Group HSA plans are expected in October 2004,
and that will be a boon for larger companies. You will hear much more
about them then.
What's especially interesting for traders with HSAs is that you can trade
an HSA actively in a similar manner as a retirement plan. Click
here for our ground breaking article (in Active Trader and
the Fidelity newsletter) for trading your retirement plan. We will soon
publish more information about special trading and tax strategies using
HSA accounts.
Our association can make paperwork easier
Insurance underwriters, bankers and brokers generally ask for documentation
for salaries, fees or business “earned income.” Most traders
don’t have this type of information to provide. We can provide guidance
and even the services you need (through our affiliate GreenTraderTax)
to form an entity and structure the earned income you need. Click
here to learn more.
Whether you are filling out the paperwork for insurance coverage, a mortgage
or a loan, our alliance can help. We can ask the vendors to customize
their paperwork for our trader members and we can provide guidance for
how to fill it out. We can also fill it out for you.
We can pre-arrange with vendors to waive their normal requirements for
documentation and accept trading gains to satisfy their needs.
More information
about HSAs.
Health Savings Accounts (HSAs)
Recent tax-law changes have created attractive new options for dealing with health insurance and medical-expense reimbursement. Before these changes, one had fewer options: to buy (or not buy) health insurance (self insurance) and how big a deductible to take. This affected the amount of your annual health-insurance premiums.
With the creation of Health Savings Accounts (HSAs), taxpayers received many new advantages. Tax-deductible contributions to HSAs are similar to deducting health insurance premiums from AGI (adjusted gross income). You have more control and flexibility over paying medical expenses, and most importantly a better chance to save money and not overpay your insurance company for benefits you never get. With HSAs, you own the unused premiums – they don't go to the insurance companies.
Here is how HSAs work: First, you need to have a high-deductible health
insurance plan as your base plan, so you are not fully self-insured. This
high-deductible plan allows you to obtain much lower insurance premium
rates (whether you are in a group plan or not). In lieu of higher premiums,
you pay the difference (give or take) to your own HSA account.
Note HSAs were originally available for individual-level plans only and
HSAs for group plans are being rolled out starting now (as of July 2004).
It’s sort of like a hybrid health insurance and self-insurance plan, sanctioned by the IRS with tax-deferral benefits.
The IRS patterns this concept off the IRA (Individual Retirement Account), where you provide for your own retirement funds with tax advantages.
After paying your high-deductible premiums (which are much lower than before), you next fund your own HSA account. Like an IRA, an HSA account is in your own name and the money in the account belongs to you, not an insurance company. So, any money left over after paying eligible medical expenses belongs to you – and that’s how you better your chances at winning the insurance game! Instead of giving all your money to the insurance company in premiums, you divide up the money and pay some to the insurance company. The rest goes to your HSA account.
If you have a serious medical problem and the bills are outrageously large, no problem – the insurance company pays those bills, above the $1,000 (single) or $2,000 (family) deductible amounts. These are the minimum deductibles; you can have higher ones as you see fit. In some plan designs, the insurance carrier pays for preventive care up front without you having to dip into your HSA account.
Like an IRA, you get a tax-deduction for your contributions to your HSA, which is not really an advantage over AGI deductions for health-insurance premiums. Traders have the same problem of needing earned income for either deduction. Also, like an IRA, an HSA has the tax advantage of tax-free build up of assets.
The worst tax scenario for taxpayers is going out of pocket on medical expenses without any insurance, HSA or HRA plan, and then not being able to get any tax deduction for those expenses because of itemized deduction limitations. Medical expenses are only deductible if in excess of 7.5 percent of AGI, and they are not deductible at all for alternative minimum tax (AMT) taxes.
Note many HSA providers may only pay interest on HSA accounts and it
may not be possible to trade an HSA account. Find out beforehand. If you
can trade your HSA that is an added plus for traders.
The main purpose of your HSA account is to pay for your "eligible
medical expenses" (see IRS guidelines), which are not paid by the
insurance company. Those expenses are not submitted above your deductible
amount.
All existing MSAs will be converted to HSAs during 2004. HSAs through
GreenTrader Health Benefits are an excellent way to pay for health care
and save money. Click
here to learn more about HSAs on the GreenTrader Health Benefits website.
HSAs are fairly new so it's important to follow the latest developments.
HSA Frequently Asked Questions from the IRS. Click
here to view IRS Notice 2004-50 dated July 2004.
HSA plan designs are coordinated between US Department of Treasury and
IRS. Click
here to read
JS-1748 from June 2004. Here are some other links on that www.ustreas.gov
page.
Model Health Savings Custodial Account http://www.irs.gov/pub/irs-dft/d5305c.pdf.
Model Health Savings Trust Account http://www.irs.gov/pub/irs-dft/d5305b.pdf.
Health Savings Accounts - Interaction with other health arrangements,
IRS Rev. 2004-45. This applies to you if you have a health flexibile spending
account (FSA) or a health reimbursement arrangement (HRA). Click
here to read Revenue Ruling 2004-45 published in May 2004. Click
here to learn more about FSAs and HRAs on our fringe benefit page
in our Tax Center. Our alliance health site offers HRA accounts, click
here http://assurantaffinity.com/gthealth/hra.htm
to learn more.
HSA Frequently Asked Questions from US Department of Treasury http://www.ustreas.gov/offices/public-affairs/hsa/faq1.html.
US Department of Treasury Issues Additional Guidance on Health Savings
Accounts (HSAS). Click
here to read JS-1278 from March 30, 2004.
Original guidance from the IRS on HSAs. Click
here to read IRS Notice 2004-2.
