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Will this health benefits plan work four our family business?


Guest danmar

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Guest danmar

My wife owns a small but growing specialty store and I am thinking of "jumping ship" from my corporate job to join her full time. She currently has only one employee--my mother-in-law, who recently retired and is working part time. Other employees are less than 20 hours per week or purely seasonal. Our goal is to create a sustainable business that meets our needs, not to create the next Starbucks. But, once I quit my job, we'll have expensive COBRA premiums that will have to be paid with after-tax money. Buying into an HMO or low-deductible health insurance plan isn't an option, though, because my wife is Type I Diabetic. I want to avoid paying income and SSI tax on our health expenses. So, I think I've got a possible solution. Can anyone tell me if this makes sense given our situation?

1. Move from a sole propreitorship to a C-Corp to allow us to deduct the benefits we provide ourselves.

2. Buy high-deductible health insurance for myself and our two children from a private carrier. My wife would buy a similar policy from a state program that insures people who can't buy their own private insuarance because of pre-existing conditions. My mother-in-law has her own retiree health plan, but currently has to pay her part of this coverage with after-tax dollars.

3. Set up a 125 flex plan with an "Individual Premium Account", which allows employees to use pre-tax dollars to pay health insurance premiums of plans other than those offered through their employment. Thus, my health policy, my wife's policy thru the state and my mother-in-law's retiree premiums could be purchased pre-tax by our company.

4. Set up a Medical Expense Reimbursement Plan where the company would pay for deductibles and prescription expenses as they are incurred. These payments would be deductible to the company. We would be willing to provide this benefit for my mother-in-law, too.

Is this a good idea? It seems like it would work for us, but am I missing other choices?

I'd prefer not to run this arrangement myself. Any recomendations for a TPA who would be insterested in our tiny business? We're located in MN.

Thanks for your time and your input.

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just a couple of thoughts -

a. I assume your wife is covered under your current group plan. If so, then, presumably, you have lots of "credited coverage"; a carrier can not use her health condition to prevent you from getting a regular insurance plan and it may not invoke a pre existing condition provision.

b. going corporate from sole proprietorship also involves other expenses which may (I emphasize "may") be greater than the cost of paying on an after tax basis.

c. instead of an individual plan for you and your family, look for a group plan offered through an association such as your college alumni or local chamber of commerce or association of specialty shops.

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