Posts in: November

What Is a Health Care Sharing Ministry – And Is Joining One a Good Idea?

November 20, 2017 Uncategorized Comments Off on What Is a Health Care Sharing Ministry – And Is Joining One a Good Idea?

It’s that most wonderful time of the year. It’s the Obamacare Open Enrollment Period to purchase health insurance coverage for 2018 on the Individual Marketplace.  Take note though, The Open Enrollment Period has been shortened this year and expires after December 15, 2017. Health insurance premiums are rising drastically for many Americans who buy insurance on the individual market. These rising costs have caused millions of Americans to look for alternatives to Obamacare health insurance plans, which for many families are over $2,000 a month. The fastest growing option to sidestep these rising costs is known as a Health Care Cost Sharing Ministry. Those who participate in these cost sharing ministries are exempt from Obamacare insurance requirements and penalties and can see big savings.

Obamacare plans come in three flavors, Bronze (the most basic coverage with the lowest premiums and highest deductibles), Silver (middle-of-the-road plans with higher premiums and lower deductibles that Bronze plans), and Gold (the best coverage with the highest premiums and lowest deductibles).  According to a recent analysis of plans on by the consulting firm Avalere, 2018 premiums for Bronze and Gold plans are increasing by an average of 18% and 16%, respectively, while premiums for the benchmark Silver plans are set to surge by an average of 34%.  Premium increases vary from state-to-state, and Avalere found the biggest jump for Silver plans in Iowa, where they will rise by an average of 69% (sorry Hawkeye and Cyclone fans).  Anecdotally, the deductibles and out-of-pocket maximum for the Silver plan I had in 2017 will be increasing slightly for 2018, and the premium is set to skyrocket by 62%!

Such rising costs are sending many of us scrambling for cost-saving alternatives.  One such alternative that is gaining huge traction across the country is something called a “Health Care Sharing Ministry.”  These ministries are organizations that facilitate the sharing of health care costs among individual members who have common ethical or religious beliefs.  They are not health insurance.  They don’t use actuaries, accept risk or make guarantees, and do not purchase reinsurance policies on behalf of their members.  But, those who are part of a cost sharing ministry are exempt from Obamacare penalties.

So, how does a Health Care Sharing Ministry work?

There are about 100 of these ministries out there, and three of them account for about 85% of the the participants.  Each ministry works in a slightly different way.  However, the guiding principal is that the members “share” each other’s medical expenses (as well as prayers and expressions of encouragement and well wishes).  In Medi-Share, the largest of the Health Care Sharing Ministries, a member’s monthly share is matched with another member’s eligible medical bills.  Through a secure online portal, Medi-Share publishes the bills eligible for sharing and coordinates the direct sharing of medical costs between members. Members know month whose bills they are paying each month (so they can pray for them), and when they have eligible bills, other members share those and the assumption is they are praying for you as well.

What are the (potential) advantages of participating in one of these?

First, members of these ministries are exempt from the individual mandate under the Affordable Care Act.  This means they don’t have to purchase qualifying health insurance (on the Marketplace or anywhere else) to avoid the penalty for failing to buy health insurance.  While the penalty amounts for 2018 have yet to be announced (and could be eliminated entirely if Congressional Republicans have their way), the 2017 penalties were either $695 per adult and $347.50 per child under 18, with a maximum of $2,085, or 2.5% of your household income – whichever is greater.

Beyond avoiding the “Obamacare Penalty” these ministries are often attractive because the monthly fees – known as a “Monthly Share” (not a premium – remember, this isn’t insurance) can be much cheaper than premiums for Marketplace plans.  In running the numbers for my family, the cost of participating in a ministry where my family’s Annual Household Portion (analogous to a health insurance deductible) is $2,500, will be roughly $2,000 per month cheaper than any Marketplace plan I can buy where the annual deductible is in that same ball park.  Numbers like this are a huge part of what has pushed membership in these ministries to more than one million Americans, according to the Alliance of Health Care Sharing Ministries.

From a non-monetary standpoint, many folks also enjoy the idea of partnering with and praying for like-minded people with similar values to take care of each other as a “community of believers.”  They also like the idea that their dollars are not going to pay for care for which they have a moral or religious objection.

Ok, those savings are ridiculous. What’s the catch?

Well, there definitely are some.  Here are some things to think about:

1)   Are you eligible?  These ministries typically require members to agree to some sort of “Statement of Faith.”  Medi-Share’s Statement requires adherence to certain ideas about the nature of God, the divinity of the Bible, and the life, atonement and resurrection of Jesus Christ.  They also require members to agree to abide by “Biblical standards” in how they live their lives – such as abstaining from the use of tobacco and illegal drugs, the abuse of legal drugs (including alcohol), and sex outside of marriage.  So, this isn’t for everyone.  However, I agreed to live by similar standards even during my college years (at Brigham Young University), so agreeing to live by them as a 39 year-old father of three living in Cedar City, Utah (a town where it’s hard to get into all that much trouble) isn’t much of a problem for me J.

2)   They likely won’t cover certain “lifestyle-related” care that a Marketplace plan would.  Don’t plan on having your fellow believers share in your medical costs in situations such as the following:

  1. You get pregnant out of wedlock.
  2. You drive drunk and get in a car accident.
  3. You get in a car accident while participating in a race or stunt, or in the commission of a crime.
  4. You get in a car accident and you’re not wearing a seat belt when it’s legally required to do so (you may get some help here, but not as much as you’d get if you would have worn your seat belt).
  5. You have an injury or illness that is the result of any illegal activity – so, if your meth lab explodes and you end up with second and third degree burns over 70% of your body, you’re out of luck.
  6. You want to have an abortion.
  7. You need treatment for alcohol or drug-related injuries and illnesses.
  8. You get an STD – unless you can show you got it via transfusion, rape, work-related needle stick, or sex within marriage.
  9. You attempt or succeed at committing suicide.

3)   You’ll have to think about pre-existing conditions again.  Terms vary among the different ministries, but you can at least count on restrictions, waiting periods, and/or caps on coverage if you get treatment for a pre-exiting condition.

4)   Your prescriptions may not be covered in the same way.  If you take (or have to start taking) a preventative or maintenance-type medication on a regular basis, this type of prescription may not be covered, or may only be covered for a while.

5)   You may lose same tax advantages.  Your Monthly Share is not a health insurance premium, so it is not deductible as a medical expense.  Also, even though these ministries are registered non-profits, your Monthly Share is not tax deductible as a charitable donation because you are getting something in return for your payment.  All these ministries allow you to make additional contributions, so anything you donate above your required Monthly Share would be tax deductible.  Finally, because these ministries are not health insurance, none of them will qualify you to have and make contributions to a Health Savings Account (“HSA”).

6)   There are no guarantees.  If you have huge medical bills and the ministry doesn’t have the funds to cover them, you are simply out of luck.  The ministries are not agreeing to take on any risk.  Unlike with health insurance, there are no state-guaranteed funds available if the ministry becomes insolvent or files for bankruptcy.  Also, state insurance departments and federal agencies like the Department of Labor have no oversight or regulatory authority over these ministries.  So, don’t expect them to help you resolve any complaints.

At the end of the day, participating in a Health Care Sharing Ministry may make sense for you.  However, they don’t make sense for everyone – especially those with pre-existing conditions that require (or have the potential to require) high-cost types of care.  Do your homework, and seek advice from a tax and/or legal professional before jumping in.

Five Benefits of the Solo 401K

November 6, 2017 Retirement Planning, Tax Planning Comments Off on Five Benefits of the Solo 401K

For many Americans, saving for retirement is like exercising or eating healthy, we know we should do it but most of us don’t.   In fact, a survey published by the Washington Post reported that over 70% of Americans are not saving enough for retirement and a study by the US Government Accountability Office reported that as many as half of American households 55 or older have NO retirement savings at all!   A recent Merrill Lynch report estimates the average cost of retirement to be nearly $750,000 but this obviously depends on your standard of living and life expectancy.   With advances in technology increasing our lifespans, we need to plan accordingly in order to have what we need in retirement.

The Solo 401K is the ideal vehicle for small business owners with no full time employees to save for retirement through its generous contributions limits which can offset your taxable income.  If your small business generated a profit this year and you are looking for a nice year-end tax deduction, the Solo 401K may be the perfect solution for you.  We have compared the other available retirement options for small businesses and the Solo 401K consistently wins hands down.  Some of the benefits include:

1. Tax Savings: In 2017, the employee contribution limit is $18,000, or $24,000 if you are 50 or over.  Compare this with the contribution limit of $5,500 for IRAs.   In addition, the business itself can do an employer match up to 25% of the employee’s W-2 compensation.  For an example, let’s assume you have a net income of $100,000 in your s-corp business and you took $35,000 as your salary.  Your contributions (traditional) and tax savings are as follows.

Employee traditional 401K Contribution                                 <$18,000>

Employer Match at 25% of $35K                                                <$8,750>

Total Solo K Contributions                                                            $26,750


Tax Savings (approx. 25% federal):                                           $6,700 (approx.)

Plus State Income Tax Savings Depending on State

For a calculator that allows you to determine your contribution levels based on your income, refer to this website, check your business entity type (sole prop LLC, partnership, s-corp) and it will calculate the solo K contribution amounts.

2. The Ability to Self Direct: The solo 401Ks established by KKOS  allows you to self-direct your retirement account which means, with very few exceptions, you can invest in virtually any type of investment you want.  Rather than be stuck with the investment options that Merrill Lynch or Charles Schwab offers, with a self directed 401K, you can invest in “what you know.”    Do you want to be a lender and get a fixed rate of interest through your 401K?  Or perhaps purchase a rental property if your interest is real estate?  Maybe a startup company in an industry you have an interest.  All of these options are possible with a self directed 401K.

3. No Third Party Custodian: By contrast to an IRA which requires a third party custodian, the 401K owner in a solo 401K can acts as his/her own trustee.  The other options to self-direct is through a self-directed IRA, however, in a self-directed IRA (without an IRA/LLC) all of your transactions needs to be processed through the third party IRA custodian.  Some clients have reported that they were unable to secure a deal due to the delays of having to go through the third party custodian.  On the other hand, with a solo 401K, you, as the trustee of the 401K, have the freedom enter into transactions or make investments on behalf of the 401K thereby eliminating the expense and delay of involving a third party custodian.  You’ll also have a checking account and “checkbook control” such that you can sign checks or send wires to make investments or to pay expenses. With freedom, of course, comes responsibility and so you must be intimately familiar with the rules and restrictions for self directing your 401K to avoid penalties and taxes with the IRS.

4. You can take a Personal Loan from your 401K: With an IRA, there are  very limited circumstances where you can use money from the retirement account for personal reasons and because of these restrictions, using IRA money for personal purposes is not a viable option.  With a 401K, you can take a loan of up to $50,000 or 50% of the value of the 401K, whichever is less, and use those funds for any purpose.   401K loans must be in writing using a compliant 401(k) participant loan note and, must provide for, at a minimum, quarterly repayments within five (5) years.  However, for individuals who need quick access to cash, the 401K loan is usually a much better options compared with those available for IRAs.

5. No UDFI Tax:   When you leverage your investment in an IRA with borrowed funds, any income that is received that is attributable to those leveraged funds is subject to Unrelated Debt Financed Income Tax (UDFI).   For example, if you buy a $100,000 rental property through your IRA, but 50% of the purchase price was from a non-recourse loan, 50% of any income from that investment will be subject to this UDFI tax.    By contrast, there is no UDFI tax for 401K investments arising from debt on real estate.   So any income you generate from that $100,000 property in your 401K would grow tax deferred even though you only really used $50,000 of retirement funds to generate the income.   That’s having your cake and eating it too!

In order to qualify for a solo 401K, you must have a small business that generates business income (sorry, rental properties alone generally do not qualify as a small business).   The 401K must be established before the end of this year in order to obtain the tax benefits for this year.   For those business owners who are looking for year-end tax strategies to lower your taxes, the solo 401K may be the perfect fit.

For more information on how the Solo 401K works, take a look at our 1 hour solo 401K webinar available here.