There has been much talk about the cost of Obamacare. The media has talked about the tax on Cadillac plans, the tax on medical equipment, the increased (or decreased depending on the survey) cost over existing medical insurance plans, and the reality or fantasy of “you can keep your existing plan.”
There has not been much discussion, however, about the implicit cost resulting from differing tax treatments to anyone transitioning from employer provided health insurance and into the Obamacare insurance exchanges. Whether the transition results in increased or decreased cost, the differing tax treatments will cost everyone who transitions from employer provided health insurance and into Obamacare Insurance Exchanges.
The differing tax treatments are a consequence of employer provided health insurance being almost always through a Section 125 insurance plan or another program where both the employer contribution and the employee contribution are pretax money. Insurance purchased from an Obamacare insurance exchange does not qualify for pretax treatment. The insurance exchange premiums will be paid with after tax money. True, there is an itemized deduction on your tax return for health insurance premiums although coincidentally, the deduction has recently been raised from the excess over 7.5% of adjusted gross income to 10% of adjusted gross income. In the real world that means there is no deduction for health insurance premiums until you deduct 10% of your adjusted gross income from your premium (and other medical costs) cost. Only the excess is deductible. For many taxpayers the resulting deduction is very little or non-existent.
The bottom line: transitioning from employer provided health insurance into an Obamacare health insurance exchange insurance plans also entails transitioning from paying premiums with pretax money and into paying with after tax money. The difference could be quite expensive.
For more on the tax consequences of Obamacare, for other tax planning or tax law matters, please contact Horowitz Law Offices.