Should Your Health Care Plan Be More Future-Focused?

The pace of health care cost inflation has remained moderate over the past year or so, and employers are trying to keep it that way. In response, many businesses aren’t seeking immediate cost-cutting measures or asking employees to shoulder more of the burden. Rather, they’re looking to “future-focused” health care plan features to encourage healthful behaviors.

This was a major finding of the 2018 National Survey of Employer-Sponsored Health Plans, an annual study issued by Mercer.

Virtual care

Among the future-focused strategies highlighted by the survey are telemedicine services. Also known as virtual care, the services streamline delivery of health care services by gathering medical data and offering interaction with health care professionals remotely via apps and the phone.

One of the promises of virtual care services is that patients will be more willing to seek medical attention when it can be delivered conveniently, and this inherent efficiency will lead to better health outcomes and reduced costs. But the study found that, though telemedicine services are widely offered, utilization rates remain low.

Specifically, the proportion of large employers (those with at least 500 employees) incorporating telemedicine into their health benefits — 80% — was up substantially from 71% in the previous year’s survey (2017) and just 18% in 2014. But utilization was only 8% of eligible employees in 2018, though that rate is up slightly from 7% the previous year.

Other trending enhancements

Here are some additional future-focused health plan design features and their prevalence among the 2,409 employers that participated in the survey:

  • Targeted support for people with chronic conditions, including diabetes and cancer: 56%.
  • Expert medical opinion services, which allow employees to get an assessment from a highly qualified specialist on a given medical issue: 51%.
  • “Enhanced care management” featuring medical personnel who provide support throughout the entire care episode and help resolve claim issues: 36%.
  • Access to “centers of excellence” for complex surgeries and other medical needs, including transplants (25%), bariatric care (14%) and oncology (10%).

These strategies “may take more time to reduce medical costs than greater employee cost-sharing, but in the process they change how plans manage care, how providers are reimbursed, and even how people behave,” according to the report.

Overall, promoting a “culture of health” was found to be a high priority for many employers. Typical tactics to achieve this goal include providing healthy food choices in cafeterias and meetings, banning smoking on the work campus, and building on-site fitness facilities. They also involve offering resources to support “financial health” and “a range of technology-based resources to engage employees in caring for their health and fitness.”

Improved experience

The design of your company’s health care plan can evolve over time to, as feasible, take advantage of features that will likely improve the experience for everyone. We can help you identify all costs associated with your plan and assess which plan design would best suit your business.

Seniors: Medicare Premiums Could Lower Your Tax Bill

Americans who are 65 and older qualify for basic Medicare insurance, and they may need to pay additional premiums to get the level of coverage they desire. The premiums can be expensive, especially if you’re married and both you and your spouse are paying them. But one aspect of paying premiums might be positive: If you qualify, they may help lower your tax bill.

Medicare premium tax deductions

Premiums for Medicare health insurance can be combined with other qualifying health care expenses for purposes of claiming an itemized deduction for medical expenses on your individual tax return. This includes amounts for “Medigap” insurance and Medicare Advantage plans. Some people buy Medigap policies because Medicare Parts A and B don’t cover all their health care expenses. Coverage gaps include co-payments, co-insurance, deductibles and other costs. Medigap is private supplemental insurance that’s intended to cover some or all gaps.

Fewer people now itemize

Qualifying for a medical expense deduction can be difficult for a couple of reasons. For 2019, you can deduct medical expenses only if you itemize deductions and only to the extent that total qualifying expenses exceeded 10% of AGI. (This threshold was 7.5% for the 2018 tax year.)

The Tax Cuts and Jobs Act nearly doubled the standard deduction amounts for 2018 through 2025. For 2019, the standard deduction amounts are $12,200 for single filers, $24,400 for married joint-filing couples and $18,350 for heads of households. So, fewer individuals are claiming itemized deductions.

However, if you have significant medical expenses (including Medicare health insurance premiums), you may itemize and collect some tax savings.

Important note: Self-employed people and shareholder-employees of S corporations can generally claim an above-the-line deduction for their health insurance premiums, including Medicare premiums. So, they don’t need to itemize to get the tax savings from their premiums.

Other deductible medical expenses

In addition to Medicare premiums, you can deduct a variety of medical expenses, including those for ambulance services, dental treatment, dentures, eyeglasses and contacts, hospital services, lab tests, qualified long-term care services, prescription medicines and others.

Keep in mind that many items that Medicare doesn’t cover can be written off for tax purposes, if you qualify. You can also deduct transportation expenses to get to medical appointments. If you go by car, you can deduct a flat 20-cents-per-mile rate for 2019, or you can keep track of your actual out-of-pocket expenses for gas, oil and repairs.

Need more information?

Contact us if you have additional questions about Medicare coverage options or claiming medical expense deductions on your personal tax return. Your advisor can help determine the optimal overall tax-planning strategy based on your personal circumstances.

Two Major Tax Law Changes for Individuals in 2019

Medical expense deduction threshold

With rising health care costs, claiming whatever tax breaks related to health care that you can is more important than ever. But there’s a threshold for deducting medical expenses that was already difficult for many taxpayers to meet, and it may be even harder to meet this year.

The TCJA temporarily reduced the threshold from 10% of adjusted gross income (AGI) to 7.5% of AGI. Unfortunately, the reduction applies only to 2017 and 2018. So for 2019, the threshold returns to 10% — unless legislation is signed into law extending the 7.5% threshold. Only qualified, unreimbursed expenses exceeding the threshold can be deducted.

Also, keep in mind that you have to itemize deductions to deduct medical expenses. Itemizing saves tax only if your total itemized deductions exceed your standard deduction. And with the TCJA’s near doubling of the standard deduction for 2018 through 2025, many taxpayers who’ve typically itemized may no longer benefit from itemizing.

Tax treatment of alimony

Alimony has generally been deductible by the ex-spouse paying it and included in the taxable income of the ex-spouse receiving it. Child support, on the other hand, hasn’t been deductible by the payer or taxable income to the recipient.

Under the TCJA, for divorce agreements executed (or, in some cases, modified) after December 31, 2018, alimony payments won’t be deductible — and will be excluded from the recipient’s taxable income. So, essentially, alimony will be treated the same way as child support.

Because the recipient ex-spouse would typically pay income taxes at a rate lower than that of the paying ex-spouse, the overall tax bite will likely be larger under this new tax treatment. This change is permanent.

TCJA impact on 2018 and 2019

Most TCJA changes went into effect in 2018, but not all. Contact us if you have questions about the medical expense deduction or the tax treatment of alimony — or any other changes that might affect you in 2019. We can also help you assess the impact of the TCJA when you file your 2018 tax return.

Could “Bunching” Medical Expenses into 2018 Save You Tax?

Some of your medical expenses may be tax deductible, but only if you itemize deductions and have enough expenses to exceed the applicable floor for deductibility. With proper planning, you may be able to time controllable medical expenses to your tax advantage. The Tax Cuts and Jobs Act (TCJA) could make bunching such expenses into 2018 beneficial for some taxpayers. At the same time, certain taxpayers who’ve benefited from the deduction in previous years might no longer benefit because of the TCJA’s increase to the standard deduction.

The changes

Various limits apply to most tax deductions, and one type of limit is a “floor,” which means expenses are deductible only to the extent that they exceed that floor (typically a specific percentage of your income). One example is the medical expense deduction.

Because it can be difficult to exceed the floor, a common strategy is to “bunch” deductible medical expenses into a particular year where possible. The TCJA reduced the floor for the medical expense deduction for 2017 and 2018 from 10% to 7.5%. So, it might be beneficial to bunch deductible medical expenses into 2018.

Medical expenses that aren’t reimbursable by insurance or paid through a tax-advantaged account (such as a Health Savings Account or Flexible Spending Account) may be deductible.

However, if your total itemized deductions won’t exceed your standard deduction, bunching medical expenses into 2018 won’t save tax. The TCJA nearly doubled the standard deduction. For 2018, it’s $12,000 for singles and married couples filing separately, $18,000 for heads of households, and $24,000 for married couples filing jointly.

If your total itemized deductions for 2018 will exceed your standard deduction, bunching non-urgent medical procedures and other controllable expenses into 2018 may allow you to exceed the applicable floor and benefit from the medical expense deduction. Controllable expenses might include prescription drugs, eyeglasses and contact lenses, hearing aids, dental work, and elective surgery

Planning for uncertainty

Keep in mind that legislation could be signed into law that extends the 7.5% threshold for 2019 and even beyond. For help determining whether you could benefit from bunching medical expenses into 2018, please contact us.

TCJA Temporarily Lowers Medical Expense Deduction Threshold

With rising health care costs, claiming whatever tax breaks related to health care that you can is more important than ever. But there’s a threshold for deducting medical expenses that may be hard to meet. Fortunately, the Tax Cuts and Jobs Act (TCJA) has temporarily reduced the threshold.

What expenses are eligible?

Medical expenses may be deductible if they’re “qualified.” Qualified medical expenses involve the costs of diagnosis, cure, mitigation, treatment or prevention of disease, and the costs for treatments affecting any part or function of the body. Examples include payments to physicians, dentists and other medical practitioners, as well as equipment, supplies, diagnostic devices and prescription drugs.

Mileage driven for health-care-related purposes is also deductible at a rate of 17 cents per mile for 2017 and 18 cents per mile for 2018. Health insurance and long-term care insurance premiums can also qualify, with certain limits.

Expenses reimbursed by insurance or paid with funds from a tax-advantaged account such as a Health Savings Account or Flexible Spending Account can’t be deducted. Likewise, health insurance premiums aren’t deductible if they’re taken out of your paycheck pre-tax.

The AGI threshold

Before 2013, you could claim an itemized deduction for qualified unreimbursed medical expenses paid for you, your spouse and your dependents, to the extent those expenses exceeded 7.5% of your adjusted gross income (AGI). AGI includes all of your taxable income items reduced by certain “above-the-line” deductions, such as those for deductible IRA contributions and student loan interest.

As part of the Affordable Care Act, a higher deduction threshold of 10% of AGI went into effect in 2014 for most taxpayers and was scheduled to go into effect in 2017 for taxpayers age 65 or older. But under the TCJA, the 7.5%-of-AGI deduction threshold now applies to all taxpayers for 2017 and 2018.

Consider “bunching” expenses into 2018

Because the threshold is scheduled to increase to 10% in 2019, you might benefit from accelerating deductible medical expenses into 2018, to the extent they’re within your control.

However, keep in mind that you have to itemize deductions to deduct medical expenses. Itemizing saves tax only if your total itemized deductions exceed your standard deduction. And with the TCJA’s near doubling of the standard deduction for 2018, many taxpayers who’ve typically itemized may no longer benefit from itemizing.

Contact us if you have questions about what expenses are eligible and whether you can qualify for a deduction on your 2017 tax return. We can also help you determine whether or not bunching medical expenses into 2018 will likely save you tax.