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08/10/2025

INDIVIDUALLY OWNED HEALTH INSURANCE

1. Although individually owned health insurance does not receive all the tax benefits granted to the employer-paid coverage, it nonetheless receives certain tax advantages pertaining to both premiums and benefits.

ADJUSTED GROSS INCOME DEDUCTION LIMITS

2. Some insureds may be able to take an income tax deduction for the premiums they pay for individually owned health insurance policies. Whether income tax deduction for these medical expenses is available to a taxpayer who itemizes deductions depends on the person's level of adjusted gross income (AGI) and the amount of medical expenses that person incurs during the year.

3. Individuals can take an income tax deduction for medical expenses that exceed 7.5% of their adjusted gross income. Although taxpayers who itemize their deductions can generally take an income tax deduction for medical expense premiums paid, they cannot deduct the premiums paid for other types of health insurance.

a.

These non-deductible health and health related insurance policies include:

i. Critical illness insurance
ii. Hospital income insurance providing a stated benefit for each period of hospitalization irrespective of any other insurance benefits received
iii. Disability income insurance

HEALTH INSURANCE PREMIUMS FOR PARTNERS, S CORPORATION OWNERS, AND THE SELF EMPLOYED

4. Although most itemizing taxpayers made deduct medical expenses-which includes the premium the taxpayer pays for health insurance-to the extent total medical expenses exceed the applicable 7.5% AGI threshold, such a limitation does not apply to taxpayers who are self-employed. Self-employed insureds may be the 100% of their health insurance premiums to the extent of their earned income from the business in which they are engaged without reference to an AGI threshold.

a.

For purposes of the unlimited tax deduction of health insurance premiums, self-employed individuals are:

i. Sole proprietors
ii. Partners
iii. More than 2% S corporation owners

BENEFITS RECEIVED UNDER INDIVIDUALLY OWNED HEALTH INSURANCE

5. Benefits a taxpayer receives under personally paid health insurance coverage are generally exempt from income tax. In fact, a person need not include health insurance reimbursements the individual receives under health insurance in the taxpayer's gross income even if the reimbursement is in excess of his or her total medical expenses.

6. The tax treatment of excess reimbursements received under personally paid health insurance varies from the tax treatment of excess reimbursements under employer paid health insurance. Excess reimbursements received under employer-paid health insurance are includable in the recipients income insofar as they are attributable to the employer's premium payments.

08/10/2025

MEDICAL AND HEALTH SAVINGS ACCOUNTS

1. Medical savings account (MSAs) became available through a pilot program under the Health Insurance Portability and Accountability Act (HIPAA) as a way to evaluate the effectiveness of a potential method to reduce the cost of healthcare by giving Insurance a direct financial stake in reducing healthcare utilization. Although the pilot program has ended, MSAs established during the duration of the pilot program continue. The MSA program was discontinued in 2003 and the law authorizing the program expired December 31st, 2007, when Congress failed to reauthorize it. However, based in part on the effectiveness of MSAs and their popularity, legislation passed in 2003 authorized Health Savings Accounts (HSAs).

2. The underlying principle behind MSAs and HSAs is that a participant would purchase a health insurance policy with a high deductible and also make contributions to a trust from which distributions may be taken principally to pay qualified medical expenses that are not reimbursed by the health insurance coverage. Examples of such unreimbursed expenses include qualified medical expenses not paid under the policy due to its high deductible or co-insurance requirement. Let's briefly examine the broad outlines of each program and their tax treatment.

ARCHER MEDICAL SAVINGS ACCOUNTS

3. A Medical Savings Account, also known as an "Archer Medical Savings Account," is a trust into which an eligible taxpayer may make contributions primarily to pay future medical expenses. Because the Medical Savings Accounts program expired, the new Archer Medical Savings Account plans may no longer be established and Medical Savings Accounts have largely been replaced by more flexible Health Savings Accounts.
Funds from Archer Medical Savings Accounts may be rolled over to Health Savings Accounts. However, Medical Savings Account plans established before the program expired may be continued and, in limited situations, new accounts may be opened.

4. In order to participate in a Medical Savings Account, an eligible individual is required to purchase and maintain a high deductible health Insurance policy
(HDHP).

a.

High Deductible Health Plans must comply with certain limits pertaining to the:

i. Minimum plan deductible
ii. Maximum plan deductible
iii. Maximum annual out-of-pocket requirements

5. Based on the type of coverage-that is, self only or family coverage- and the amount of the High Deductible Health Plan deductible, the plane participant can make a limited contribution to a Medical Savings Account. The maximum annual Medical Savings Account contribution for participants with self only coverage is equal to 65% of the deductible; the maximum annual Medical savings Account contribution for participants with family coverage is equal to 75% of the deductible. The participant is not required, however, to make Medical Savings Account contributions in any year.

TAX TREATMENT OF MEDICAL SAVINGS ACCOUNT CONTRIBUTIONS

6. When a plan participant makes a Medical Savings Account contribution that does not exceed the applicable limit (65% or 75% of the Health Deductible Health Plans deductible), the entire contribution is tax deductible without reference to the participants Adjusted Gross income threshold.

7. The contributions made to the Medical Savings Account by the participant are credited with interest, and that interest is tax deferred until distributed.

TAX TREATMENT OF MEDICAL SAVINGS ACCOUNT DISTRIBUTIONS

8. Distributions from a Medical Savings Account are intended primarily to pay qualified expenses that are not reimbursed by health insurance. Accordingly, when is distribution from a Medical Savings Account is used to pay for unreimbursed qualified medical expenses, those distributions are entirely tax-free.

9. If a person takes a Medical Savings Account distribution that exceeds his or her medical expenses, the excess amount must be included in income. In addition, a 20% tax penalty will be imposed, unless an exception applies.

a.

Excess distributions, although includible in income, will not be subject to the 20% tax penalty if they were received:

i. While the participant is disabled
ii. After the participants death
iii. After the participant reaches the age of eligibility for medicare

08/10/2025

MULTIPLE OPTION PLANS

1. An employer may offer more than one plan. This type of plan is called a "double option" or "multiple option" plan. Choices may be traditional insurance, Health Medical Organizations, or Preferred Provider Organizations. When multiple option plans are offered, the employer must offer an open enrollment period of at least 10 days in duration each year to allow the employee to switch plans.

08/10/2025

EMPLOYER ADMINISTERED PLANS SELF-INSURANCE

1. Very large employers may elect to self-insure rather than buy Group insurance coverage. Under self-insured plans, the employer funds and pays for member claims and benefits. The employer can therefore offer specific benefits that are best suited to employees' needs. This grants the employer more control over cost and flexibility over benefits.

2. In some cases, the employer will self-insure up to a certain amount and will carry insurance for anything above that amount under parts of total and individual stop-loss coverage. Premium for this insurance may be paid by the employer or with funds from employer/ employee contributions. Claims may be administered by the company or by a third party administrator hired to process claims and paperwork.

08/10/2025

SMALL EMPLOYER PLANS

1. As noted earlier, small employers are not subject to the employer mandate. For purposes of the Affordable Care Act, a small employer is one that employees between two and 50 employees, although states have the option to expand this limit to 100 employees, at the states discretion.

2. Small employers may obtain health insurance coverage through State exchanges that serve small businesses, known as Small Business Health Option Programs (SHOPs). SHOPS offer small group health insurance plans through private insurance companies; employers that qualify for SHOP coverage can select one or more plans to offer to their employees and can set the premium rate that they will contribute to the plans.

3. To encourage small employers to offer health insurance to their employees, the Affordable Care Act provides a tax credit to eligible small businesses and to small tax-exempt organizations that employs moderate- and low income employees. The credit subsidizes qualifying small employers for a certain percentage of the premium cost of the insurance they offer to their employees.

4. When it was first introduced in 2010, the credit was capped at 35% of the employer's premium costs (25% for non-profits). In later years, the credit increased to 50% (35% for nonprofits) of premium costs. As of 2024, the maximum credit amounts remain at 50% and 35%. The credit is available to the employer for two consecutive years.

CONSOLIDATED OMNIBUS BUDGET REHABILITATION ACT

5. Popularly known as COBRA, this act was passed to ensure the portability of Group Insurance in cases where an employee loses his or her insurance due to death or unemployment. The law applies to employers with 20 or more employees. COBRA allows employees or dependents up to 60 days to elect coverage continuation. Continuation of coverage is not allowed if a person obtains coverage under another group plan, HMO, or Medicare.

6. Employees and dependents who lose insurance due to termination, layoff, or reduction of hours below full-time may continue their group insurance, at their own expense, for 18 months. The enrollees cost cannot be more than 2% higher than the group rate. Dependents who lose their insurance due to death, divorce, or retirement of the employee may continue the group insurance for 36 months.

CONVERSION

7. Conversion allows an employee to convert his or her Group Insurance to an individual policy at the end of the continuation period. Conversion at the end of the continuation period optional. If offered, the conversion policy must meet State requirements. Proof of insurability cannot be required, and the insurer must provide coverage, even if the person would otherwise be considered uninsurable. The employee must notify the employer of his or her intent to convert within 31 days of the end of the continuation period.

08/10/2025

PURPOSE OF GROUP INSURANCE

1. Group Insurance is typically provided by a business or Association (the plan sponsor) for the benefit of its employees or members (the plan participants). With a group plan, a master policy is issued to the employer who pays the premiums and enrolls the group. The individual group participants are the Insureds, who often share in the premium.

a.

There are several reasons for establishing a group insurance plan:

i. Underwriting-Group Insurance is underwritten based on the group's anticipated claims experience and not on the expected individual claims experience. With the group as the unit of selection, persons can qualify for Group Insurance who otherwise may not qualify for individual insurance. Older, less healthy workers are carried by the younger, healthier members in the underwriting process. The very nature of Group Insurance allows for some adverse selection.
ii. Lower cost-an entire group is insured under one policy. For this reason, administration, paperwork, and underwriting are less expensive than if individual policies were written on each of the group plan participants.
iii. Experience rating-once a group is underwritten, renewal is based on the claims experience of the entire group. Under group plans that are experienced rated-an arrangement normally reserves only for larger groups-lower claims mean lower premiums; higher claims experience means higher premium.

SETTING UP A GROUP LIFE INSURANCE PLAN

2. An employer usually applies for a group life insurance policy, as with other types of group insurance. Individual policies are not issued; instead, a master policy is issued to the employer, who is the owner of the policy. Each participating member in the group is issued a certificate of Insurance that specifies the terms of his or her coverage.

3. An eligible employee obtains coverage under the group plan by completing an enrollment form. This form may require a medical examination. For groups larger than 15 or 20, however, the policy is usually written on a guaranteed issue basis, and no proof of insurability is required. The enrollment form requires employees to disclose certain personal data and to name a beneficiary. Anyone accept the employer can be named as the beneficiary for payment of the death benefits.

GROUP HEALTH PLAN REQUIREMENTS

4. Under the affordable Care Act (ACA), the size and structure of a workforce- small or large- determine which parts of the (ACA) apply to an employer. For example, premiums and rating factors for small group plans can be based only on age, family size, geographical location, and to***co use. In contrast, premiums for large employer plans are based on employees health status, claims experience, in other traditional underwriting factors.

5. Under the Affordable Care Act, certain employers are required to offer their employees and dependent health insurance coverage or otherwise be subject to a possible penalty. This is commonly known as the "employer mandate" or the "play or pay" requirement. The law states that certain "applicable" employers must offer at least 95% of their full-time employees (and dependents) minimum essential health insurance that is both affordable and of minimum value or otherwise be subject to a possible fine if one or more employees obtains coverage from an exchange and receives a premium tax credit.

6. For this purpose, an applicable employer is one that employs an average of at least 50 full-time (including full-time equivalent) employees for any given year. The determination of whether an employer is considered a large employer for the next year is made annually based on the current number of employees. For instance, if an employer had, on average, at least 50 full-time employees (including full-time equivalents) in 2023, it would be considered an applicable large employer for 2024. An employer would average the number of its employees across the 12 months in a year to determine its status for the following year.

TYPES OF GROUP INSURANCE

7. The two major categories of Group insurance or group life insurance and group health insurance.

a.

Falling under these two major categories are several types of group Insurance:

i. Contributory verse non-contributory- a contributory group is one which the employees either pay all premiums or share in the payment of premiums with the employer. Non-contributory groups are groups in which the employer pays the entire premium.
ii. Employer/employee insurance-this type of group is known as an individual employer group. Most employer/ employee plans allow anyone who is working with the company to be eligible for group insurance. For non-contributory plans, 100% of the eligible members of the group must be enrolled. For contributory plans, 75% of the group must be enrolled.
iii. Multiple Employer Trust (METs)- A MET its composed of several employers in the same industry that form a trust fund to combine workers for insurance eligibility. A MET is usually formed to increase the number in a group to qualify for lower premiums. A MET is also used in cases where an individual employer group is too small to qualify for regular group insurance.
iv. Labor organization groups-labor unions can buy group insurance to cover their members. The union owns the policies for the benefit of its members. The following restrictions apply: all members must be eligible, premiums must be entirely from union funds, and a minimum of 10 members must be enrolled when the policy is issued.
v. Association groups-Association groups are comprised of members of an association, such as Independent School district, cities or towns, or police and fire department personnel. All employees must be eligible. Premiums may be contributory or non-contributory.
vi. Multiple employer welfare arrangements (MEWAs)-these groups were authorized under the employees retirement income Act of 1974. Their purposes to allow employers to buy Group insurance for their employees. The plans are usually established by employers in the same industry.

There are two types of multiple employer welfare arrangements:

i. Fully insured-there must be two or more employers with at least 100 employees. Non-contributory plans require 100% enrollment. Contributory plans require 70% enrollment.
ii. Self-insured-the self-insured plan requires five or more employers and at least 200 employees, it must have a certificate of authority from a state Department of Insurance, and it must submit reports similar to those of an insurance company.

b.

Falling under these two major categories are several types of group Insurance:

i. Disability income insurance- Disability income insurance replaces a portion of the income loss if the employee becomes disabled as a result of an accident or illness. Group plans are either (or both) short-term disability or long-term disability. Short-term disability plans are normally non-occupational, which means that they only cover sickness or injuries (not occurring on the job workers compensation covers job related claims). Long-term disability plans normally or both occupational and non-occupational. In other words, they provide benefits regardless of whether the disability was related to the job, although the benefit is normally reduced by income from other sources. Disability payments may be offset by sick pay, salary, commission, workers compensation, governing income, or other disability payments.
ii. Blanket Insurance-under blanket insurance, the insured is not individually named but is automatically insured by being a member of the group. Blanket Insurance is normally used for groups with constant in and out movement, such as boy scouts, Little League teams, or tour travel groups. Premiums are paid based on the number of members in the group. Claims are paid directly to the individual members in case of injuries.
iii. Credit Insurance- Credit Insurance can be written either as a group or individual insurance. The purpose is to pay a person's debts in the event of disability or death. Thus, if a debtor becomes disabled while covered, the payments on the debt due during the period of disability will be paid by the insurance. Group Credit Insurance must typically have a group of at least 50 persons. The creditors are the policy owners and the beneficiaries. The debtor is the insured, and benefits are paid to the creditor until the debt has been satisfied. The creditor is responsible for paying the premiums. Money to pay the premiums can come from the creditor, the debtor, or both.

ELIGIBILITY FOR GROUP INSURANCE

8. To be eligible for group insurance, employees must meet certain criteria;

a.

which may vary depending on the type of group and the requirements of the Insurance Company:

i. Probationary period-employers may require a probationary period before the employee becomes eligible to enroll in Group Insurance. The probationary. May vary but maybe as long as 6 months. The employee becomes eligible on the first day of the month following the completion of the probationary. Group health insurance plans subject to the Affordable Care Act cannot require a probationary period longer than 90 days.
ii. Full time-the employee must be full-time usually (30 hours a week or more).
iii. Actively at work-the employee must be actively at work on the effective date of the insurance. If he or she cannot be at work, then the coverage will not become effective until he or she returns to work.
iv. Enrollment-the employee must enroll and authorized premium deductions from his or her paycheck if the plan is contributory. There is an initial and annual enrollment period of 30 days.
v. Eligibility period-if the application is not made within the eligibility period then the applicant may be required to prove insurability.

DEPENDENT ELIGIBILITY

9. Dependents are eligible to enroll in group insurance;

a.

But they must meet the following requirements:

i. Enrollment-enrollment requirements are the same for dependents as for the employee. Newborns are covered automatically for the first 31 days, after which they must be added to the policy.
ii. Eligibility-under recent healthcare reform requirements, children may continue to be enrolled under parents health insurance up to the age 26.
iii. Coverage-the exception of newborns, coverage does not begin for dependent if they are in the hospital on the effect of date of the insurance.

08/10/2025

OVERVIEW

1. Those who represent the insurance industry are charged with the duty of supporting and advancing the business of insurance through proper, principles, and ethical practices. To the extent that agents are committed to in guided by a code of ethical practice standards. It is virtually assured that they will be able to competently and appropriately fulfill their professional duties and responsibilities.

2. In this chapter, we will examine the foundation of professional ethics and discuss how ethical and legal behavior may differ from each other. We will also consider the fundamental ethical principles that should govern agents' professional activities. Accordingly, we will look at the insurance sales process and consider the ethical concerns associated with prospecting, obtaining and using a client's suitability information, making recommendations, completing applications for coverage, delivering policy, and providing ongoing client service. In addition, we will look at some of the important ethical concerns associated with specific products and when working with vulnerable client populations.