Health insurance is one reason you should consider creating a corporation if you work for yourself. There are certain advantages that corporations get that are not available to you as an individual.
One of the advantages of creating a corporation is the way you can access insurance. .
As an individual you can get insurance, however there are special laws that govern group insurance in most states. As an individual, insurance companies have much more freedom to charge you higher rates. With group insurance their maximum rates are limited by state law.
For example, if you and your wife apply for insurance as an individual and your wife is pregnant, the rates are likely to be very very high. Either that or they won’t cover the pregnancy. However, if you use your corporation to sign up for a group policy, some states limit how high the insurance company can raise the rates. These states also keep the insurance company from excluding you for a pre-existing condition.
So lets say that your premium would normally be $250 per month. The insurance company wants to charge you more because your wife is pregnant, but the state limits them to only raising the premium by 50%. So the insurance company can charge you $375 per month, but they can’t deny you coverage or charge you $2000 per month.
The laws vary from state to state, but most of the time group insurance will be a much better deal than buying as an individual. Group insurance is something you will need to purchase as a business not as an individual.
Most of the time you are required to have at least two employees to qualify for group insurance. This means you and your spouse will probably need to both be employees of the corporation and have separate insurance policies if it is just the two of you.
Tax Deduction for Insurance
At one point individuals were unable to claim a tax deduction for money spent on health insurance and health care. Most of this has changed now, and you can claim a deduction for your health care costs as an individual. However, by keeping your medical expenses within your corporation, you are less likely to drawn the attention of an auditor because traditionally businesses have had deductions for healthcare while individuals have not.
Your company can choose to insure you and pay for out of pocket medical expenses as well. This means the company can cover your co-payment and other healthcare expenses. Just keep in mind that you will probably be required to treat every employee in the same way. So you can’t have your company cover the deductible for you and your spouse, but expect other employees to cover it on their own.
High Deductible Insurance
The lower your deductible the higher the cost of insurance. By choosing a plan with a high deductible and setting up your company to cover all of the expenses not covered by insurance, you can usually save the most money if you are reasonably healthy.
By choosing a high deductible of several thousand dollars per person, you will have a low monthly payment. Just make sure you set aside the money within your company to cover the cost of the deductible should you or one of your employees need medical treatment.
Corporate Policy for Healthcare
When setting up health insurance it is important that you document your policy. Most of the time you must have the same policy for everyone. As owners of the company, you cannot give yourself one set of healthcare benefits, but give everyone else something else. There are certain ways around this, like tying healthcare to a minimum term of service or creating two companies–one for your employees and one for yourself. However, what will look best if you ever end up in an audit is a clear policy where everyone is treated fairly and in the same way.