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Covered California Q&A

Covered California and Obamacare related questions from consumers, employers and agents are answered by Phil Daigle with the best information available at the time. Archived entries may no longer be accurate as the Covered California and Obamacare knowledge-base is evolving quickly. TO REQUEST A PERSONAL RESPONSE INCLUDE EMAIL ADDRESS.


Individual Health Insurance Tax Consequences

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Question: What are the tax implication if my employer offers a health insurance plan and I decided to delcine and purchase my own? They do not offer an FSA.

Answer: If you opt out of your employer's group health plan in favor of your own personal health insurance plan, your health insurance premiums will be lumped together with your medical expenses and listed on your federal 1040 form as itemized deductions. You may deduct only the amount by which your total medical care expenses for the year exceed 7.5% of your adjusted gross income. Usually, only people with unusually high expenses and low income will find premiums to be tax-deductible.

I understand, that many employers are reacting to ever increasing group health insurance costs by asking employees to make greater contributions to the premium. Even though your share of the premium is a lot more than it used to be, it's usually a better deal to take the group coverage than to purchase personal health insurance. That's because state laws require the employer to pay a substantial percentage of the premium - usually at least 50% - for each employee. So even though you can find individual health insurance plans at lower premiums, they don't cover as much. The average group health plan has an actuarial value of 80% or more. That means the plan will cover 80% 0f the typical medical costs. Individual plans can have an actuarial value as low as 55%. Dependents are a different matter. Employers are not required to pay anything toward coverage of an employee's dependents and smaller employers typically do not.

So, bottom line, take another look at the employer sponsored health plan for yourself, but shop for personal coverage for your spouse and kids. Families do not all have to be on the same plan.

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