November 1, 2012 – Making Sure That the Clients With Pre-Existing Medical Conditions Can Maintain Health Insurance by Self-Employment or Otherwise and The End of Wondering and Wandering Through the World of Wandry and Formula Clauses


Written with Thomas C. Davis, RFC
Integrated Wealth Management, LLC


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This week we are pleased to have guest author, Thomas C. Davis, RFC, of Integrated Wealth Management, LLC.  Mr. Davis can be reached at 813-314-2284 or via email at

Making Sure That Clients with Pre-Existing Medical Conditions Can Maintain Health Insurance by Self-Employment as a “Group of One”

Many of us have self-supporting clients who have not reached the Medicare age (65), but are in need of medical insurance for themselves and, sometimes, family members.

The best alternative is to obtain a small group insurance policy as a small employer. Many insurance agents recommend Blue Cross Blue Shield for this purpose because they are “in Florida to stay” and generally have good coverage.

Other carriers that are commonly recommended include UnitedHealthcare and Aetna.

Clients who cannot qualify for individual coverage or who have a family member who cannot qualify for an employer-sponsored policy can get coverage through self-employment. Because coverage cannot be denied to groups based on pre-existing conditions, clients may use their business to obtain health insurance.

The Trick

Florida is ranked 48th out of the 50 states for the highest rates of uninsured individuals. One main reason is that individuals can be denied coverage if they have a pre-existing condition.  Florida is a guaranteed issuance state, which means an individual within a group plan cannot be denied coverage if he or she has had creditable insurance for at least 18 months prior to applying.  The issue is that many individuals will not have the type of creditable coverage needed to obtain new coverage because of a pre-existing condition.  All individual plans are medically underwritten.  While coverage may not be denied, pre-existing conditions can be permanently excluded.

The trick is that all health care insurance carriers must offer coverage to small businesses, and a pre-existing condition must be covered under these plans. Small businesses are between 1-50 employees, with the owner of the business counting as an employee.  The business can be a proprietorship, a company organized as a disregarded LLC, an S-corporation, or a partnership for federal tax purposes.

Under guaranteed issuance, at least two plans are available to small businesses; a small employer health benefit plan and a high-deductible plan. Carriers are not allowed to make individuals wait for coverage based on a pre-existing condition if the individual has continuous, creditable coverage that did not lapse for longer than 63 days since turning 18. This is because if an individual has ongoing coverage, then preventative care will reduce future medical costs.

Importantly, while these plans can require a waiting period for individuals with pre-existing conditions, coverage cannot be denied as it can with individual plans. Florida Statutes Section 627.6699 provides that the longest wait period allowed is 24 months. This wait period varies from individual to individual and depends on the pre-existing condition. Additionally, the only pre-existing conditions for which a wait period can occur are those that have manifested themselves in the prior 24 months.

Some insurance companies have policies that reduce the allowed statutory wait time.  For example, Blue Cross Blue Shield has a maximum 12 month wait period for small business plans.  Blue Cross Blue Shield also looks at previous insurance coverage and the pre-existing condition to further reduce the wait time.  Aetna has a standard 12 month wait period, but this does not adjust on an individual to individual basis.

Because the wait period can be reduced when previous coverage is held by the individual, maintaining health insurance in gaps of coverage is important.  Clients should be aware that temporary medical insurance policies are available on the marketplace for individuals who are between jobs.  Temporary health insurance is exempt from HIPPA, meaning that when the term is over, extended coverage will not necessarily be granted.  This lack of guarantee makes small employer coverage a better option for individuals with a business.

The Traps

Pursuant to Florida Statutes Section 627.6699(3)(v), a group  of one must register between August 1 and August 31 in order to get the guaranteed issuance starting on October 1 of the year registered. Most carriers will enforce this enrollment rule, so a client who is on COBRA or who is perhaps receiving medical insurance from another state by reason of other arrangements should set their calendar to apply for a group plan in the month of August.

If the group has two or more employees (including the owner), then enrollment is ongoing. Therefore, small businesses that are larger than a sole-proprietorship can enroll whenever needed by contacting insurance providers.

The only downside to small business health insurance as an alternative to an individual plan is that a carrier can make an adjustment in the rate based on the pre-existing condition of up to 15% of the carrier’s approved rate. This additional charge will be applied uniformly to the premiums charged to employees and dependents, so those purchasing health insurance will be responsible for the increased rate. Still, an increase in the rate charged is better than having no health insurance.

 The End of Wondering and Wandering through the World of Wandry and Formula Clauses

After formula clauses not using disclaimer or charitable elements received approval by the U.S. Tax Court in Wandry v. Commissioner T.C. Memo 2012-88 (March 2012), many estate planners began to cautiously expand use of formula clauses in their transfer documents. TheWandry case and its implications are analyzed in great detail in our article, Wondering and Wandering through the World of Wandry and Formula Clauses, which you can access by clicking here.

Many commentators believed that the IRS nevertheless would challenge the result in Wandry by appealing it to the 10th Circuit, and that the IRS might have a chance of winning the case on appeal.  As expected, the IRS appealed the Wandry case to the 10th Circuit in August of 2012; however, on October 17, 2012, the IRS withdrew its appeal by voluntarily dismissing its appeal to the 10th Circuit.

While there is no explanation for why the IRS withdrew its appeal, commentators have speculated that the IRS did not want to lose a formula clause case in another circuit in light of recent taxpayer victories in the McCord, Christiansen, Peter and Hendricks cases.

For now, estate planners are safe using Wandry-type formula clauses in their transfer documents for clients who would like to use what remains of  their $5,120,000 gift tax exemption before the end of 2012.


We are providing this month’s, last month’s, and the preceding month’s Applicable Federal Rates, because for a sale, you can use the lowest of the 3.  To view the chart, please click here.


MONDAY, NOVEMBER 5, 2012 12:30 pm – 1:00 pm
Please join us for Lunch Talk, a free monthly webinar series from the Clearwater Bar Association.  This month’s topic is What Lawyers Need to Know About Surveys – How to Read Them and What to Check with guest speaker David Brittain.  To register for the webinar please visit:

TUESDAY, NOVEMBER 13, 2012 12:30 – 1:30 pm 
Pension actuary Jim Feutz will join Alan Gassman for a webinar on Update of Pension, Labor and Tax Laws, Including 2012 Law Changes and Anticipate Changes for 2013.  This webinar qualifies for 1 hour of continuing education credit.  To register for the webinar please click here.

TUESDAY, NOVEMBER 13, 2012, 5:30 – 6:00 pm 
Alan S. Gassman will be joined by health care attorney Lester Perling to speak on What Physicians Need to Know About “Excluded Persons” and How to Make Sure You Do Not Have One.  To register for the webinar please click here.

WEDNESDAY, NOVEMBER 14, 12:30  – 1:00 pm 
The Whistleblower Threat: Do You Have It and What Can You Do About It?  Lester Perling, J.D., M.H.A. and Alan S. Gassman, J.D., LL.M. will be presenting a webinar on the whistleblower threat.  To register for the webinar please click here.

For details about each event, please visit us online at

Christopher Denicolo, J.D., LL.M. is a partner at the Clearwater, Florida law firm of Gassman, Crotty & Denicolo, P.A., where he practices in the areas of estate tax and trust planning, taxation, physician representation, and corporate and business law.  He has co-authored several handbooks that have been featured in Bloomberg BNA Tax & Accounting, Steve Leimberg’s Estate Planning and Asset Protection Planning Newsletters and the Florida Bar Journal.  is also the author of the Federal Income Taxation of the Business Entity Chapter of the Florida Bar’s Florida Small Business Practice, Seventh Edition Mr. Denicolo received his B.A. and B.S. degrees from Florida State University, his J.D. from Stetson University College of Law and his LL.M. (Estate Planning) from the University of Miami.  His email address is

Kenneth J. Crotty, J.D., LL.M., is a partner at the Clearwater, Florida law firm of Gassman, Crotty & Denicolo, P.A., where he practices in the areas of estate tax and trust planning, taxation, physician representation, and corporate and business law. Mr. Crotty has co-authored several handbooks that have been published in BNA Tax & Accounting, Estate Planning, Steve Leimberg’s Estate Planning and Asset Protection Planning Newsletters, Estate Planning magazine, and Practial Tax Strategies.  Mr. Crotty is also the author of the Limited Liability Company Chapter of the Florida Bar’s Florida Small Business Practice, Seventh Edition. He, Alan Gassman and Christopher Denicolo are the co-authors of the BNA book Estate Tax Planning in 2011 & 2012. His email address is

Thank you to our law clerks that assisted us in preparing this report:

 Kacie Hohnadell is a third-year law student at Stetson University College of Law and is considering pursuing an LL.M. in taxation upon graduation. Kacie is also the Executive Editor of Stetson Law Review and is actively involved in Stetson’s chapter of the Student Animal Legal Defense Fund. In 2010, she received her B.A. from the University of Central Florida in Advertising and Public Relations with a minor in Marketing, and moved to St. Petersburg shortly after graduation to pursue her Juris Doctor. Her email address is

 Alexandra Fugate earned her B.A. in English from the University of Florida in 2008, and J.D. from Stetson University College of Law in 2012. She has been a Guardian ad Litem for the past two years, a judicial intern for the Twelfth Circuit in Bradenton, and was recently admitted to the Florida Bar. She wants to pursue a career in business, employment, and labor law. Her email is

 Eric Moody is a third-year law student, scheduled to graduate in December 2012, at Stetson University College of Law and is considering pursuing an LLM in estate planning upon graduation. Eric is also an Articles and Symposia Editor for Stetson Law Review. In 2009, Eric received a B.S. in Business Management from the University of South Florida. Eric’s email address is