According to § 10 I No.3 EStG, all contributions to private health and long-term care insurance should be fully tax-deductible as “other provision expenses” from 2010. However, this only applies in so far as it is proportionally a so-called basic insurance (basic health insurance and compulsory nursing care insurance).
The Federal Court of Finance (BFH, ruling of 02.09.2014, Az. IX R 43/13) last confirmed that tax-free subsidies by the employer for health or nursing care insurance (§ 10 Para. 2 No. 1 Sentence 2 EStG) “in total” in direct economic connection with the provision expenses within the meaning of § 10 Para. 1 No. 3 EStG, i.e. the so-called basic coverage. The tax offices offset tax-free allowances paid to the employee, whether for basic benefits or for optional benefits, exclusively against the preferential contributions to the basic insurance, which can then no longer be claimed against tax.
However, these tax disadvantages for employees, if the employer wanted to be generous by providing voluntary allowances also for optional services, can be avoided. This is because employers have the opportunity to be more flexible with regard to taxation and to integrate employees more closely.
Employer’s aid fund instead of tax trap for employees
The employer can – without any contract with a “company” health insurance – install his own solution for his employees. To this end, it is sufficient for the employer to promise health benefits for the employees and their family members, for example, either itself or through a support fund or foundation. In addition to such sickness benefits, extended continued payment of wages, or subsidies for glasses or teeth can also be promised.
In individual cases (e.g. where the interest is predominantly business) this may be tax-free. Tax exemption can also be considered when social reasons are at the forefront. Benefits provided by relief funds can at least be optimised within the tax limits. An employer’s own aid fund does not require authorisation as an insurance company and is therefore not subject to supervision or regulation.
Tax advantages constitutionally secured
Since the Constitutional Court has expressly exempted the costs of adequate health care from taxation, this also applies to contributions to a support fund. Corresponding tax certificates today, some of which have already been in existence for more than 70 years, are therefore also recognised by the tax authorities.
If the employer directly covers half of the costs of the relief fund for employees instead of paying a subsidy, this does not give rise to any liability for income tax. Payments made by the support fund in the event of illness are also fully tax-free, because they are offset by a corresponding amount of medical expenses.
Support services for employees covered by statutory health insurance
Commitments – by the employer directly or through a provident fund – for additional benefits to employees and family members insured by the statutory health insurance scheme are also possible. The Waldorf Schools, for example, have developed such an institution together with the Hannoversche Beihilfekasse with actuarial support.
Today, this is often still done through a group insurance policy or, within the framework of so-called company health insurance, through private health insurance (PKV). However, an offer from the employer is not only cheaper, but also results in a stronger employee loyalty.
Solid planning and calculation is a prerequisite
In order to avoid surprises, in the case of health care cost commitments made directly via employers or via a provident fund, solid planning and actuarial calculation of the expected benefits based initially on external experience is necessary. Only then can the services be finally determined.
In contrast to private health insurance, social aspects can also be taken into account in the premium structure, such as age independence, income and the possibility of providing non-contributory insurance for children. A disproportionate increase in contributions in old age, as in the private health insurance, due to an individual actuarial premium calculation, is not necessary.
Unforeseen burden of major losses
According to the law, there is no obligation to insure the “uninsured” if there is comparable coverage in the event of illness to that provided by a support fund, if the legal claim to the benefits is based on a promise by the employer, which may even be limited to the legal minimum level. The insurance obligation can even be fulfilled by the support fund taking out a reinsurance policy for each member with a German private health insurer for outpatient and inpatient services in shared rooms, with a maximum annual deductible of 5,000 euros per person.
Such reinsurance policies are currently offered for about 40 euros a month for adults and half for children. This is recommended anyway to absorb an unforeseen burden of major losses.
by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm
by courtesy of
www.versicherungsmagazin.de (published on 25.03.2015)
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Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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