Webinar Recap: How to Factor Healthcare Costs into Clients' Tax Planning Strategies, with Holistiplan

‍

Caribou and Holistiplan recently co-hosted a webinar to discuss tips and insights into an area of tax prep that is often forgotten: healthcare. Caribou co-founder, Christine Simone, and Holistiplan Head of Partnerships, Torie Happe, discussed the following healthcare-related factors that impact tax planning:

‍

• Medical Tax Deductions
• HSA Contributions and High Deductible Health Plans
• IRMAA
• Premium Tax Credits

‍

Torie also showed how Holistiplan's software can help financial advisors model these factors to better plan for and optimize clients' overall financial plans.

‍

If you’re short on time or prefer reading over watching, an overview of some of the key points from the conversation can be found below. However, if you want to hear the great questions that webinar attendees asked during the live session, we highly recommend watching the webinar below.

‍

‍

First and foremost, Christine and Torie touched on why advisors include healthcare in a comprehensive tax planning strategy. Everyone faces healthcare situations throughout their life, and with these situations come costs. Plus, there are multiple healthcare costs that are tied to tax benefits (or consequences). Not to mention that healthcare costs are a top concern for future retirees. Talking through healthcare costs and the healthcare-related life events that involve tax strategies creates a two-for-one value add for your clients that will lead to better retention, increased referrals, and a more accurate financial plan. 

‍

‍

Christine: “It seems like tax season to Holistiplan is to us what the Medicare open enrollment season is. So hopefully by April 15th you’ll be able to take that sigh of relief, although I don’t know if it works that way anymore with all the extensions that are allowed now.”

‍

Torie: “Exactly, we say that tax planning shouldn’t be just a January to April thing. It’s an all-year thing at this point.”

‍

Christine: “That’s the same take we have with healthcare planning. We might have busy seasons but healthcare planning is a year-round process.”

‍

After introductions, Christine and Torie launched into the first topic of the day: medical tax deductions.

‍

Christine: “Most financial advisors probably know this already, but it’s worth repeating. Taxpayers can deduct their qualified, unreimbursed medical care expenses that exceed 7.5% of their AGI. You can itemize deductions on IRS Schedule A to deduct your medical expenses instead of taking the standard deduction. However, expenses paid for from an FSA or HSA aren't deductible because the money in those accounts is already tax-advantaged. Some examples of medical expenses that can be tax deductible are preventative care services, surgeries, dental/vision care, psychologist/psychiatrist visits, prescription meds, appliances (glasses, false teeth, hearing aids, etc.), travel related to medical care, and all unreimbursed medical expenses incurred as a result of COVID-19 are tax deductible. Currently, 90% of taxpayers choose to pay the standard deduction rather than itemize it. Which is really unfortunate because many people are likely missing out on savings by not itemizing.”

‍

Christine and Torie then showed an example of a HealthPlanning Analysis and a Holistiplan report where a couple would be better off itemizing their deductions rather than taking the standard deduction.

‍

‍

Torie: “The itemized deduction summary is coming off the client’s tax filing, so if you collect your client's tax forms, their 1040s, or whatever tax document that they had claimed for the year, we spit out a tax report that actually shows those itemized deductions that your client did take. So this could show that maybe they didn't do the itemized deduction for healthcare they just did the standardized deduction, and with this report, you can show your client that if they had taken that itemized deduction amount they might have actually been able to save a little bit more, so let's figure out that piece for 2023. The tax report where you see this deduction is the tax report for the tax filing for the previous year. But now that you’ve been equipped with this information, you can then go build-out scenarios (which we’ll show you in a few slides) on what that potential change could be if they itemize their healthcare cost as opposed to just taking that standard deduction.”

‍

Christine: “What a client did last year can help inform what to do this year, right?”

‍

Torie: “Exactly.”

‍

Christine: “I love that because we always say that there’s no crystal ball for healthcare costs. But, last year’s behaviors and expenses can certainly be a predictor or indicator of what you can expect to spend last year.”

‍

Torie: “And there’s definitely medical costs you incur every year. We can’t plan necessarily for emergencies, but fixed annual costs you can plan for.”

‍

Christine: “Next up is a pretty hot topic among financial advisors: Health Savings Accounts. We’ll also talk about high-deductible health plans. For those unfamiliar, Health Savings Accounts (HSAs) are tax-advantaged plans specifically designed for medical expenses. They are offered in combination with high-deductible health plans as a way to save for future healthcare expenses, much like 401k plans to save for retirement. HSAs are known to have a triple-tax advantage. Contributions are tax-deductible, savings grow tax-deferred, and withdrawals for HSA-eligible expenses are tax-free. Money in an HSA rolls over year after year, but money in FSAs does not roll over. An important thing to note is that you must be enrolled in a high-deductible health plan to get an HSA. A high-deductible health plan is exactly what it sounds like; it’s a plan with a high deductible and lower monthly premiums. These plans are great for younger, healthier people who are low utilizers of the healthcare system, or for wealthier families who can afford to pay the high deductible and want an HSA.

For financial advisors with clients who are reaching Medicare eligibility, there are additional considerations to keep in mind when it comes to contribution timing and eligibility. Check out the explanation below:

‍

‍

Christine: “We’re now going to get into our third strategy, which is related to Medicare, and it is IRMAA. IRMAA stands for Income Related Monthly Adjustment Amount. It’s an income adjustment added on top of Medicare Part B & Part D. It’s calculated by the Social Security Administration using a two-year look-back period. Appeals can be submitted based on life-changing events that result in significant income changes (e.g. retirement). Caribou helps a lot with these appeals and life events. There are events that don’t qualify for an appeal though, such as the sale of a home, and is something advisors will need to plan for with clients. The good news though is that both Holistiplan and Caribou can work with you and your clients to outline this quite clearly. 

‍

‍

Torie: “In Holistiplan you can plan for different scenarios using our scenario analysis. You can see what your client’s thresholds are, and you have interactive graphs to see how different scenarios will affect them. I love the scenario analysis because it’s really easy for the client to understand since you’re using their real data from the previous year. And you can also take into consideration events like the sale of a house to see if that will increase client premiums. Or maybe your client retired last year and will apply for an IRMAA appeal. You can put those things into Holistiplan.

‍

‍

Christine: “So we’ve talked a lot about Medicare clients, now it’s time to show some love to pre-65 clients. Our fourth strategy is premium tax credits, which apply to Marketplace plans. We’re seeing clients retire earlier and earlier, meaning that until they turn 65 they’re without health insurance. This is where Marketplace health plans come in to fill that gap between employer coverage and reaching Medicare eligibility at 65. Premium tax credits make Marketplace plans more affordable and are based on income.

‍

‍

Christine: “Holistiplan allows you to store premium tax credits and you can look into different scenarios.”

‍

Torie: “This part is based on the state, so it’s not super granular. Advisors will need to plug in which state their client lives in to build this out. This makes it really easy to do though. It walks you step-by-step on the items you need to input to have that output show on the scenario analysis for your client.”

‍

Christine: “As a last remark, we’re both advocating for frequent conversations and data collection from clients to influence what strategies to apply to clients in the future, what expected costs might be, and what possible tax-saving opportunities are out there for clients.”

‍

Last, Torie and Christine spoke how about advisors can get in contact with either Caribou or Holistiplan's team if they are interested in implementing a more robust tax offering to their client base. Here are links to book time with either team:

‍

Caribou: Click Here to Talk to Christine

Holistiplan: Click Here to Talk to Holistiplan

‍