Medicare Insurance
Learn How your Business Can Pay for your Insurance and Medical Expenses
If you are self-employed, your income is subject to a 15.3% self-employment FICA tax. Added to a 28% Federal income tax and a 5% state income tax, this could leave you paying nearly 50% of your income to the government. Fortunately, most self-employed people qualify to set up an HRA or Health Reimbursement Arrangement. An HRA can enable your business to reimburse you for health insurance and out-of-pocket medical expenses, and will save you an extra $3,000 each year.
Health Reimbursement Arrangements for the Self-Employed
A Health Reimbursement Arrangement is simply an agreement which enables your business to cover employee’s medical expenses, including individual health insurance premiums, as a tax-free fringe benefit. This tax benefit was established in Section 105 of the IRS tax code in 1955, when General Electric lobbied for a business reimbursement rule to give it more flexibility in creating employee benefits.
Anyone set up as an S-corp or C-corp qualifies to set up an HRA. If you are a Schedule C or Schedule F sole proprietor, an HRA is allowed if your spouse can work at least part time in the business. You will be setting up an employee benefits package that covers health insurance premiums, disability insurance premiums, long-term care premiums, and even out-of-pocket medical expenses such as dental coverage.
An HRA makes your taxes go down because when you get to write off medical expenses on your Schedule C, you avoid paying Federal income taxes, state income taxes, and the 15.3% FICA self-employment tax. Not only can the business reimburse you for the cost of health insurance premiums, but you can also set up the HRA to reimburse for dental coverage, preventive care, disability insurance, long-term care insurance, and other out-of-pocket medical expenses.
If you are self-employed but do not have an HRA, you can write off your health insurance premiums on your 1040, saving you Federal income taxes. But, you are still subject to FICA and state income taxes for these expenses. You are not able to write off any of the other expenses listed above.
Using an HRA with a Health Savings Account
Some financial advisors do not realize that you can have an HRA along with a Health Savings Account (HSA). You can of course. The only caveat is that the HRA cannot reimburse for expenses that could apply toward the deductible of the HSA, such as doctor visits or prescription drugs. But, it can cover any insurance premiums and preventive care.
The potential savings are substantial. Let’s assume a business owner is in a 28% tax bracket, has an HSA plan, and is incurring the following expenses.
- Health insurance premiums – $7,000
- Preventive expenses – $1,000
- Other insurance – $2,000
The self-employed business owner can write off the $7,000 premium on Federal income taxes, saving 28% of that or $1,960. If the HSA is fully funded, an additional $1,582 will be saved off of Federal income taxes and $282.50 from state income taxes. So, in total, the business owner’s taxes will go down by $3,824.50.
Once an HRA is set up, the entire $10,000 in expenses listed above can be reimbursed by the business. So, the business owner would be saving a total of $2,800 from Federal income taxes, $500 from state income taxes, and $1,530 in self-employment taxes. The business owner will also get to take advantage of the same $1,960 in HSA tax savings, for a total tax reduction of $6,790.
Smart business owners take advantage of all the tax deductions for which they qualify. You can reimburse health insurance expenses from the beginning of the year, but out-of-pocket expenses only from the date your HRA begins.
Free Drug Samples Benefit Uninsured and Medicare Patients
The issue of prescription drug samples is one that is hotly debated. Some questions whether giving out samples to lower income patients is helping them by providing them with the medication they need or if it’s hurting them by giving them a sample of a prescription they can not afford in the long term. Here are some resources on the subject to help you decide what you think.
Dr. Wayne S. Strouse wrote a letter to the editor in response to a study that appeared in the Journal of the American Board of Family Medicine claiming that free drug samples are actually hurting uninsured patients. Strouse disagrees and points out that many of his Medicare and uninsured patients can barely afford to pay co-pays, let alone pay for a prescription. He also criticizes the study for comparing “patients [who are insured or on Medicare] to patients who have insurance (or with money)” saying that it “is comparing apples with oranges.” To read Dr. Strouse’s letter, go to http://www.jabfm.org/cgi/content/full/16/1/86-a.
The Rochester Democrat and Chronicle published an article by guest essayist Benjamin Cohen on the topic of free drug samples. Cohen, who is obviously in favor of the samples, lists the benefits of drug samples as relief for needy patients and education for doctors. He claims that pharmaceutical drug representatives are invaluable to physicians because they provide information about new drugs and advancements that many doctors do not have time to research. He also points out the benefit to lower income and elderly patients who cannot afford prescription drugs on a regular basis. By providing them with drug samples, doctors can ensure their patients are getting the help they need. To read Cohen’s article visit the Rochester Democrat and Chronicle online at http://www.democratandchronicle.com/apps/pbcs.dll/article?AID=/20080620/OPINION02/806200344.
David E. Williams wrote an entry in his Health Business Blog on a new study that was published in the American Journal of Public Health, The study claims prescription drug samples are more often given to wealthy and insured Americans than low-income, uninsured patients. Williams responds with little surprise, stating that drug samples are more of a marketing tool by pharmaceutical companies and are not intended to solely help low-income patients. In fact, he writes, many free clinics don’t even accept drug samples because they know that their patients cannot afford the high-cost drugs long term. Since drug samples are used as a marketing tool, it would make sense that they are made available to insured patients who could then purchase them after trying them out, says Williams. The read this blog post visit http://www.healthbusinessblog.com/?p=1589.
The Delaware County Office of Service for the Aging (COSA) posted a fact sheet on a Medicare Prescription Drug Program, Part D, which took affect January 1, 2006. This federally subsidized drug program for seniors, available through private insurance companies, helps seniors with the cost of their prescription drugs by giving them coverage for a monthly premium of between $11 and $35 a month. This fact sheet describes the benefits and gives instructions on how to enroll in the program. The informational Web page also gives other suggestions on how to save money on drug costs including asking for drug samples from their doctor, buying medications in bulk and using generics when possible. To learn more about the program visit COSA’s Web site at http://www.delcosa.org/site/389/medicare_prescription_drug.aspx.
Ken Johnson, a Senior Vice President in the pharmaceutical division at Research and Manufacturers of America wrote a letter to the editor of the New York Times in response to an article that questions the value of the distribution of free drug samples to doctors for their patients. Johnson argues that many uninsured and low-income patients depend on free drug samples and by discontinuing them it would take away a valuable safety net for these patients. Read Johnson’s letter to the editor here: http://www.nytimes.com/2006/02/09/opinion/l09drug.html.
A North Carolina resident wrote an opinion article for the News & Record on a current tax law in the state that taxes physicians for free drug samples. The article asserts that current tax laws consider free drugs samples part of the physicians “office supplies,” therefore making it taxable. The author points out that many doctors and patients depend on the free samples for affordable treatment and if doctors cannot pay the taxes on the medication they would not be able to accept them. To read this full article visit the News & Record’s Web site at http://www.news-record.com/content/2008/07/15/article/free_drug_samples_beneficial.
Plaintiff's Personal Injury Attorneys are Agonizing Over the New Medicare Reimbursement
The growing Medicare shortfall in Washington has many politicians looking for ways to bridge the funding gap. As a result a new law, effective July 1, 2009, has been enacted which requires liability insurers (which include carriers who write CGL policies, auto policies, homeowners’ policies and those defendants who are self-insured such as supermarkets) to determine and report whether a claimant is covered and is entitled to Medicare benefits. If the claimant received Medicare benefits during their treatment for the injury, Medicare is holding out both hands to make sure they get 100% reimbursement, despite the comparative negligence of claimant.
This new law will pose new challenges for plaintiff’s attorney, the insurance carrier for the defendant and the mediator who is attempting to resolve the claim. If the attorney or insurance carrier does not comply, they risk being sued by the Government for reimbursement up to five years post-closure and monetary fines.
What is the new law?
On December 29, 2007, President George Bush signed into law the “Medicare Medical, and SCHIP Extension Act of 2007.” The new legislation amends the Medicare Secondary Payer Act (MSA) by establishing new reporting guidelines beginning July 1, 2009. Under the new rules, all liability insurers, and self-insurers will be required to determine whether any individual who files a claim against the insurer or any entity insured or covered by the insurer is entitled to Medicare benefits. If so, the insurer must provide Medicare with that individual’s identity and any other information that maybe required under the law. This information must be furnished to Medicare within the time specified by after the claim is resolved through settlement, judgment, award or other payment (regardless whether or not there has been an admission or determination of liability). If an insurer fails to notify Medicare in accordance with these guidelines, a civil penalty of $1,000 per day will be charged per claimant. The new legislation clearly indicates a shift in policy which will result in the federal government monitoring general liability claims more closely. The fines represent a new enforcement push by Medicare to hold attorneys and insurers liable.
What does it mean for Plaintiff’s Attorney?
Plaintiff’s attorney will begin to take a closer look at the case he or she accepts. The attorney should change the client intake form to ask very comprehensive health related questions, whether the client is entitled to Medicare, how long has he been on Medicare, which type of Medicare and whether the claimant has used Medicare to obtain treatment for his/her injuries. The client should be advised in detail about the new Medicare Recovery Act and that Medicare is looking for 100% reimbursement, not taking into account if there is any comparative negligence. The client should be told there is no hiding from Medicare because it will be notified upon a settlement or judgment and the lien may take months if not years to resolve.
Think twice before accepting a small personal injury case involving Medicare recipients where liability is disputed. A settlement amount will have to cover Medicare charges up to 100%, attorney fees and provide money for the plaintiff. If that type of recovery does not seem likely consider rejecting the case.
However, Baby Boomers are increasing and may be a good part of an attorney’s personal injury practice. It is estimated that in the next couple of years, approximately 25% of the Country’s population will consist of baby boomers who are Medicare recipients. If the claimant has undergone limited treatment using Medicare and needs additional treatment, consider advising the healthcare provider to bill plaintiff directly or consider finding a doctor who will take the treatment on a lien. This way a Medicare lien will be avoided or at least a very minimal lien incurred. If liability is undisputed, have the medical provider bill the insurance carrier directly.
What if the attorney has a case where Medicare has a substantial lien? If it is before July 1, 2009, consider settling the claim before that time. If you cannot, again advise the client of the new Medicare Recovery Act and the reporting requirements.
If there is a settlement and Medicare does not know about it and mistakenly pays for services it has a right to recover, it can go after the attorneys whose fees are paid out of the settlement. Also the Medicare recipient can lose his or her benefits. Lawyers could be exposed to malpractice claims for not handling a client’s benefits properly. Insurers can be liable for monetary fines for failure to report. If a plaintiff loses his Medicare benefits, the plaintiff may bring a legal malpractice claim against the attorney and a bad faith claim against the insurer for not making sure Medicare benefits were protected.
After July 1, 2009, makes sure the claim is settled for an amount that will cover the Medicare lien. It may be possible to comp the lien, but do not count on it. In making settlement demands, assume that you will pay Medicare 100% reimbursement in what is paid out. Make sure all charges refer to the injuries that your client sustained. Medicare will not be speedy to resolve these claims, so discuss with the client about holding the amount in a trust account until the CMS lien is resolved rather than disbursing the entire amount owed to plaintiff.
It is unknown whether plaintiff’s attorney will have to worry about set asides calculations for future medical care and submit them to Medicare for approval. Currently, there is no formal process of liability settlements for future medical care.
Finally, negotiations with the liability insurance carrier will become more difficult. They will demand information about your client, such as social security number, so that they can comply with the requirements and avoid fines. Also, even though Medicare may ignore the comparative negligence issues, Insurance adjusters will take the position that despite Medicare’s 100% reimbursement, it will not pay 100% of the medical bills. An insurance carrier will not want to increase the cost of a claim and stand firm on its position.
This new law will pose challenges for the plaintiff’s attorney who is attempting to resolve the claim. The key is to be aware of the Medicare Reimbursement Act, and to prepare the parties prior to a settlement of the barriers that the Medicare Recovery Act may present.
This new law will pose new challenges for plaintiff’s attorney, the insurance carrier for the defendant and the mediator who is attempting to resolve the claim. If the attorney or insurance carrier does not comply, they risk being sued by the Government for reimbursement up to five years post-closure and monetary fines.
What is the new law?
On December 29, 2007, President George Bush signed into law the “Medicare Medical, and SCHIP Extension Act of 2007.” The new legislation amends the Medicare Secondary Payer Act (MSA) by establishing new reporting guidelines beginning July 1, 2009. Under the new rules, all liability insurers, and self-insurers will be required to determine whether any individual who files a claim against the insurer or any entity insured or covered by the insurer is entitled to Medicare benefits. If so, the insurer must provide Medicare with that individual’s identity and any other information that maybe required under the law. This information must be furnished to Medicare within the time specified by after the claim is resolved through settlement, judgment, award or other payment (regardless whether or not there has been an admission or determination of liability). If an insurer fails to notify Medicare in accordance with these guidelines, a civil penalty of $1,000 per day will be charged per claimant. The new legislation clearly indicates a shift in policy which will result in the federal government monitoring general liability claims more closely. The fines represent a new enforcement push by Medicare to hold attorneys and insurers liable.
What does it mean for Plaintiff’s Attorney?
Plaintiff’s attorney will begin to take a closer look at the case he or she accepts. The attorney should change the client intake form to ask very comprehensive health related questions, whether the client is entitled to Medicare, how long has he been on Medicare, which type of Medicare and whether the claimant has used Medicare to obtain treatment for his/her injuries. The client should be advised in detail about the new Medicare Recovery Act and that Medicare is looking for 100% reimbursement, not taking into account if there is any comparative negligence. The client should be told there is no hiding from Medicare because it will be notified upon a settlement or judgment and the lien may take months if not years to resolve.
Think twice before accepting a small personal injury case involving Medicare recipients where liability is disputed. A settlement amount will have to cover Medicare charges up to 100%, attorney fees and provide money for the plaintiff. If that type of recovery does not seem likely consider rejecting the case.
However, Baby Boomers are increasing and may be a good part of an attorney’s personal injury practice. It is estimated that in the next couple of years, approximately 25% of the Country’s population will consist of baby boomers who are Medicare recipients. If the claimant has undergone limited treatment using Medicare and needs additional treatment, consider advising the healthcare provider to bill plaintiff directly or consider finding a doctor who will take the treatment on a lien. This way a Medicare lien will be avoided or at least a very minimal lien incurred. If liability is undisputed, have the medical provider bill the insurance carrier directly.
What if the attorney has a case where Medicare has a substantial lien? If it is before July 1, 2009, consider settling the claim before that time. If you cannot, again advise the client of the new Medicare Recovery Act and the reporting requirements.
If there is a settlement and Medicare does not know about it and mistakenly pays for services it has a right to recover, it can go after the attorneys whose fees are paid out of the settlement. Also the Medicare recipient can lose his or her benefits. Lawyers could be exposed to malpractice claims for not handling a client’s benefits properly. Insurers can be liable for monetary fines for failure to report. If a plaintiff loses his Medicare benefits, the plaintiff may bring a legal malpractice claim against the attorney and a bad faith claim against the insurer for not making sure Medicare benefits were protected.
After July 1, 2009, makes sure the claim is settled for an amount that will cover the Medicare lien. It may be possible to comp the lien, but do not count on it. In making settlement demands, assume that you will pay Medicare 100% reimbursement in what is paid out. Make sure all charges refer to the injuries that your client sustained. Medicare will not be speedy to resolve these claims, so discuss with the client about holding the amount in a trust account until the CMS lien is resolved rather than disbursing the entire amount owed to plaintiff.
It is unknown whether plaintiff’s attorney will have to worry about set asides calculations for future medical care and submit them to Medicare for approval. Currently, there is no formal process of liability settlements for future medical care.
Finally, negotiations with the liability insurance carrier will become more difficult. They will demand information about your client, such as social security number, so that they can comply with the requirements and avoid fines. Also, even though Medicare may ignore the comparative negligence issues, Insurance adjusters will take the position that despite Medicare’s 100% reimbursement, it will not pay 100% of the medical bills. An insurance carrier will not want to increase the cost of a claim and stand firm on its position.
This new law will pose challenges for the plaintiff’s attorney who is attempting to resolve the claim. The key is to be aware of the Medicare Reimbursement Act, and to prepare the parties prior to a settlement of the barriers that the Medicare Recovery Act may present.