Since he is young and presumably healthy and is mainly protecting against major medical expenses, I recommend enrolling in a “qualified” High Deductible Health Plan (HDHP). This is health insurance with high deductible amounts, so it costs less than traditional health insurance. Under federal law, the minimum deductible in a HDHP plan is $1,100 for an individual and the maximum is $5,500. The higher the deductible, the lower the premium.
The advantage of an HDHP is that he can shelter up to $2,850 a year from state and federal taxes in a Health Savings Account (HSA). Depending on his tax bracket and where he lives, that could save him as much as $2,971 in taxes per year, assuming a combined tax rate of 52.6%—9.3% in state income tax (California), 28% in federal income tax, and 15.3% in self-employment Federal Insurance Contributions Act (FICA) tax. Another way of looking at it is that the HSA doubles his buying power, since he is using pre-tax dollars to pay for things. The contributions he makes to an HSA are his to keep, rolling over each year. The funds are not taxed, provided he uses them to pay medical expenses or withdraw them after age 65. The funds earn interest on a tax-deferred basis. Think of it as an IRA that he can use to pay out-of-pocket medical expenses.
To find a qualified plan, he should speak with a health insurance broker. A broker works with several insurers and can find the best plan, rates and coverage. To find a broker, log on to a website like http://www.healthinsurancewiz.com and fill out a form requesting a free quote. Your information will be sent to a broker in your area who will contact you. Good luck!
· 10 years ago