The Tax Attic with Jerry Coon — February 18, 2010

Jerry Coon, Enrolled Agent

Healthcare providers declare profits, increase rates

You wonder what the thought process is sometimes when you read a headline like we read last week. One of the largest health insurers in California, Anthem Blue Cross, a subsidiary of Indianapolis’ Wellpoint Inc., declared record profits on one hand and then on the other hand announced it was raising its rates by 39%. Several other national health care providers also announced record profits in conjunction with rate increases.

What are they thinking? I’m neither a person who believes in conspiracies nor a believer in grand schemes and cover-ups, especially on a national scale, but this causes even me to stop and question this turn of events.

Is there a better way to get Congress out of its present deadlocked position on a national health care plan than by having private companies announcing record profits and almost simultaneously announcing record price increases? Granted, the proposed increases affect only individual policy holders—about 800,000 for Anthem Blue Cross in California and about 13 million nationwide—but these increases are on top of sizable 2009 increases, up to 68% in some instances, assessed to these same policy holders.

Individual policy holders take in the group of people who are not provided insurance through an employer. This number is growing daily because employers are still terminating, laying off and reducing the hours worked of employees. By losing their employer-provided coverage, they are forced to buy an individual policy. Granted, even employer-provided insurance has seen average price increases of 7% to 10% for the last few years, but that’s a far cry from 39%.

According to Sandy Praeger, a spokesperson for the National Association of Insurance Commissioners, “You’re going to see increases of 20, 25 and 30 percent for individual health policies in the near term.”

These increases will put unemployed or under-employed people in a terrible position. Buying health insurance or paying the mortgage or rent is not an enviable position to be in, but the way things are heading, it could be a common one.

That brings me back to the original point of this article. If the health insurance industry cannot find a way to regulate itself, I don’t think it takes much of a crystal ball to see the government will get involved, and it won’t matter if it is Democrats or Republicans running the show in Washington. The industry itself has to contain costs, and limit profits and premium increases or the government will find that way for them. In my mind, it’s not a good thing for the federal government to seize control of any private industry. For the private health insurance industry to escape that fate, however, they have to start regulating themselves. I’m not sure they can do that.

I want to follow-up on last week’s article about the tuition credits available to students in 2009. In most instances, it will pay to take the American Opportunity Tax Credit or a Lifetime Learning Credit, but sometimes it will be more advantageous to take a tuition and fees deduction. The tuition and fees deduction is either $4,000 or $2,000, and is taken as an adjustment to income on line 34 of Form 1040. Since it’s an adjustment to income, it will also save Michigan income tax. As with so many deductions today, it has an income phase-out feature built in. This results in single taxpayers with income of more than $65,000 and joint filers with income of more than $130,000 being limited to a deduction of $2,000. Single filers with income of more than $80,000 and joint filers with income in excess of $160,000 will totally lose the deduction.

Why would a taxpayer take the tuition and fees deduction instead of the American Opportunity Tax or the Lifetime Learning Credit? The American Opportunity Tax Credit is only available for four years of college. In these first four years, it will pay to take the American Opportunity Tax Credit. After the fourth year, the Lifetime Learning Credit kicks in. That credit is 20% of tuition paid up to $10,000 resulting in a maximum credit of $2,000. However, for a taxpayer in the 25% tax bracket with tuition of $4,000 or less, it might be beneficial to take a $4,000 deduction at the 25% tax rate and also get a deduction of Michigan tax at 4%. Total tax savings would be 29%. The Lifetime Learning Credit would create savings of 20%. This could result in greater tax savings by using the tuition and fees deduction instead of the Lifetime Learning Credit. This is Jerry Coon signing off.

Jerry Coon is an Enrolled Agent. He owns
Action Tax Service on Northland Drive in Rockford.
Contact Jerry at his website at www.actiontaxservice.com.

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