Last December, the Protecting Americans from Tax Hikes (PATH) Act of 2015
was signed into law by President Obama. The bipartisan bill received significant
attention for the benefits it delivered including IRS charitable transfers,
educator-expense deductions, mass-transit benefits and the American Opportunity
tax credit. Within PATH was another notable benefit with potential tax
savings of more than $1 million.
Here are five things to know about PATH and why it presents a golden opportunity
for the healthcare industry.
1. PATH makes significant changes to a provision that applies to captive
insurance companies. Business owner's form privately owned captive insurance companies to
protect themselves from the risks associated with business ownership.
Rather than paying insurance premiums for a policy to third-party insurers,
premiums are paid to the captive. Pre-defined risks are underwritten with
the assistance of a third-party actuarial team. Any reserves realized
from unpaid claims remain an asset of the captive, protected from creditors
of the business and available for investment or disbursement to the captive owners.
Once a captive insurance company is created, its owners are able to use
their capital in more effective ways than paying insurance premiums to
commercial insurers, such as expanding, investing, and growing.
2. Premiums for captive insurance companies increases. PATH extended more than 50 expired provisions of the tax code, along with
other tax compliance and administrative changes. One such change concerns
a modification of section 831(b) of the Internal Revenue Code that raises
the cap on premiums for captive insurance companies from $1.2 million
to $2.2 million.
3. Potential tax savings increases. Business owners with captive insurance companies can now write-off up to
$2.2 million in pre-tax revenue in 2016. That comes out to about $1.3
million in potential tax savings.
4. This is not a loophole. While the opportunity created by PATH may sound too good to be true, it's
not. On the contrary, it's black letter law of the IRS tax code.
5. There's no better time to establish a healthcare captive insurance company. Captive insurance companies are an exciting and innovative way to minimize
risk while accumulating wealth. However, they are underutilized by healthcare
organizations as the benefits are not widely understood or easily explained.
For physicians and healthcare business owners who are already considering
whether to develop a healthcare captive insurance company, or those who
had not realized the potential benefits of forming a captive, PATH represents
one more reason to research these benefits further and consider taking
the first step in forming a healthcare captive insurance company.
Jeff Blankinship is co-founder of Surgical Captive, a new firm focused
on turnkey captive formation and captive management for ambulatory surgery
centers, surgical hospitals, and other healthcare organizations and business
owners. Surgical Captive provides solutions that allow its clients to
protect their assets, save money, enhance cash flow, and benefit from
customized self-insurance solutions through the establishment of captive
insurance companies. Learn more at www.surgicalcaptive.com.