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I referred to these questions - Q1 and Q2 but it was long time back. My old job is over, employer regular coverage was till end of Oct, 2019. Starting a contract job(Corp to Corp)-self employed(sole member and owner). Questions:

  1. If i pay COBRA payments(I don't have any money in HSA for 2019)-can it be pre-taxed? Remember COBRA is not an arrangement I made - it's not an insurance from my corporation, it's something from my past job.
  2. If COBRA is not pre-tax, how i can get the tax benefits? My medical expenses including premiums are not going beyond 7.5% of AGI(Adjusted Gross Income).
  3. I cannot make use of my IRA funds to pay the COBRA premium as I am not unemployed for more than 12 weeks(one can pay COBRA or medical insurance from IRA if they are still on unemployment wages beyond 12 weeks)

How I can get the COBRA not tough for me financially? The reason I am keeping COBRA is that though it costs more than 4.5 X - it is still better than exchange plans as I have already met the family deductible and only going to pay 10% of any charges. Very soon I will meet out of pocket maximum then I have to pay 0%. I cannot go for some namesake medical insurance because my family need a good one.

Edit 1 In my case plan goes from 1st Apr to next year(31st Mar). COBRA premium for the family of 4 is $1550 while if i buy the plan from the exchange - even the worst one($14K family deductible) is costing around $1725 per month for the entire family. I don't qualify for premium tax credit. A broker stated that once you loose your COBRA coverage(18 months) then i will qualify for premium tax credit. I am stuck in a tight spot. Is there any better HSA options? My COBRA coverage - family out of pocket is already met. I now pay only 10% of future costs.

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Regarding question 1: No, many sources agree that COBRA premiums are not eligible for the self-employed health insurance deduction. The issue is that the insurance must be established under your name (if filing Schedule C, C-EZ, or F) or the name of your business. COBRA insurance is established under the name of your former employer, so it's not eligible. Questions 2 and 3 similarly don't seem to offer much help.

I'm not sure if there is an obvious solution here. But run the numbers with plans from the exchanges. If your income is below 400% of the federal poverty level, you should be eligible for the premium tax credit. And then any premiums that you end up paying out-of-pocket would be eligible for the self-employed health insurance deduction. Also keep in mind having hit the deductible or out-of-pocket max of your COBRA insurance will only last through the end of the year anyway, so starting a new plan at the beginning of next year may make the most financial sense.

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You asked,

How I can get the COBRA not tough for me financially?

The direct answer is, you can't.

Since you don't have money socked away in an HSA, COBRA premiums cannot be paid pre-tax. The only option you have for getting a tax break of any kind related to COBRA is if your medical and dental expenses are above 7.5% of your AGI and you're itemizing your deductions. But you've stated that isn't the case. That basically means there is no way to get tax relief for the money you're spending on COBRA.

With the availability of individual insurance through the exchange, most people find that COBRA is not affordable since you can get coverage at a much lower premium on your state's exchange. But you've ruled that out too, because of hitting your accumulator limits.

COBRA is, for the vast majority of individuals, the most expensive way to have health insurance.

  • I see there was a downvote. Would someone like to add a comment pointing out if there are problems with this answer, or anything missing from it? – dwizum Oct 30 at 15:57
  • Thanks, that's a valid point - I had assumed the context of the HSA not being an option. I will edit that in. – dwizum Oct 30 at 18:42
  • No. Pointless to ask. You'll only drive yourself crazy. People 'drive-by' and for whatever reason, downvote. I upvoted into your second paragraph, good answer. The DV isn't likely to revisit this question to even see your request. Sorry. I'd still love to have a forced way of justifying a DV, without it prompting an argument. – JTP - Apologise to Monica Oct 30 at 18:57
  • I'll say that but for a subsidy, most people cannot buy apples-to-apples individual coverage for materially less money in premium, some people sure. As individual coverage in most states (not NY) is priced to your age this would depend on your age, and covered dependents because that employee+child(ren) tier can be a life saver for a single mom with three kids. COBRA was really valuable when individual coverage was underwritten, it's less valuable now, but not because it's expensive. When you buy individual you can shop your coverage and pick your benefit levels and opt to buy less, sure. – quid Oct 30 at 21:59

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