 Paying
for my own health-care plan
|  Dear
Tax Talk,
Since the health-care coverage that my employer
provides went up over 38 percent this year, I have decided to carry
my own health insurance, which is cheaper than that which my employer
can provide. Since I am still employed, can I write off payments I
make for my own health care? What if my employer reimburses me for
these payments to my own individual policy? -- Cindy
 Dear
Cindy,
What makes sense economically sometimes pays
off taxwise. I've seen some clients' younger employees forgo the
employer plan in favor of a lesser-cost individual policy. While
these premiums would be deductible by you as unreimbursed medical
expenses subject to reduction by 7.5 percent of your adjusted gross
income, it's more tax advantageous if they're just not counted as
income to you.
Until recently, there wasn't much guidance from the
Internal Revenue Service on how to treat these payments. However,
since health-care costs have become such a hot topic, the IRS has
started putting pen to paper and coming up with some great acronyms.
We now have MSAs, or medical savings accounts; FSAs, or flexible
spending accounts; and HRAs, or health reimbursement arrangements,
that help pay for your HDHPs, or high-deductible health plans, and
other medical expenses. The best acronym that will help you is an
employer-provided health reimbursement arrangement.
Simply put, an HRA is an agreement by your employer
to reimburse you for qualified medical expenses. Pursuant to IRS
Notice 2002-45:
Reimbursements for insurance covering medical-care expenses as
defined in §213(d)(1)(D) are allowable reimbursements under
an HRA, including amounts paid for premiums for accident or health
coverage for current employees, retirees and COBRA-qualified beneficiaries.
An HRA is an arrangement by the employer and does
not have to be as formal as some other benefit plans. However, there
are some important rules that an employer must follow regarding
discrimination and qualified reimbursements so that the arrangement
is respected by the IRS.
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