If you work for yourself, finding health insurance is a big headache. While there’s no holy grail, there are ways to navigate the maze and find good coverage at manageable prices. Whether it is affordable, of course, is a crapshoot. That depends on a myriad of factors–where you live, the ages and the health of who is being covered, and the type of policy you need, among other things.
Today, an estimated 42 million people — about a third of the American work force– are technically their own boss. I’m one of them. We’re self-employed freelancers and independent contractors. Some workers who fall into this cadre are temps or part-timers. Some have already officially “retired” and are continuing to work a reduced schedule, or have accepted an early retirement package, then launched an entrepreneurial enterprise.
Regardless of the job title, the problem is the same: Finding health insurance. For loads of people I’ve interviewed and met over the past several years, it’s a roadblock. They gamely talk the talk of following their passion and finding their dream job, or starting their own business, but the thought of losing health benefits stops them cold. It’s a huge hurdle when you consider that starting over in new field will generally require a pay cut, at least initially.
When clients come in for financial planning advice before they make a leap to self-employment, they’re shell-shocked to discover their new health insurance premiums might clock in at $600 or more a month, says Greg Bitz, a fee-only certified financial planner with Metropolitan Financial Group in Chevy Chase, MD. “For some, that’s quadruple what they had been shelling out via their employer-sponsored plan.” That can require serious budget revamping, and Bitz usually reviews their possible policies before they sign on for coverage to be sure they know what they’re getting. (For more career changing tips, go to How to Plan for A Second Career.)
For countless self-employed workers, though, health insurance is simply not within their means. Help is on the way. The Affordable Care Act, now the the 2010 health-care reform law, is intended to tackle this problem beginning in 2014. That’s when if you’re under 65, you will be able to purchase health insurance through state insurance exchanges, with tax credits for those with low and moderate incomes. And if you have a pre-existing condition, you’ll be able to land a policy. For more details on what the health-care law does, go here.
For now, here’s one piece of good news. If you’re self-employed and pay health insurance premiums, you can deduct 100% of the cost from your income when calculating your federal income taxes. The deduction is not subject to the 7.5% AGI limitation that other medical expenses are.
Here are eight ways to land self-employed health insurance in 2012:
Ex-employer’s plan. If you’re retiring, count your lucky stars if this is an option. Most workers don’t have it. One of the biggest hurdles is figuring out how to pay for health insurance until 65 — the magical age when Medicare kicks in. Medicare will cover the majority, but not all, health care costs. Among large firms (200 or more workers) about one in four offered retiree health benefits in 2011, down significantly from 32% in 2007, and a far cry from the whopping 66% who offered retirees health bennies in 1988, according to the Kaiser Family Foundation/Health Research & Educational Trust survey. And only 6 percent of small firms offered retiree health benefits last year.
Some companies let retired workers buy health insurance through the company plan. They might even subsidize a portion of the premiums. If not, it can be pricey. A Towers Watson survey of 552 of the nation’s largest employers found that retirees under age 65 pay an average of $633 per month for individual coverage and $1,633 monthly for family coverage. Current employees with similar coverage were paying $432 and $1,249, respectively. Moreover, most companies hold the right to alter or cancel the coverage at any time.
A spouse’s plan. Some freelancers, like me, are fortunate enough to have an insured partner with an employer who offers family coverage. Thanks, Time-Warner! Your spouse will pay a higher premium for family coverage, but it will still be less than an individual policy. Annual premiums for employer-sponsored family health coverage increased to $15,073 ($5,429 for single coverage) last year, up 9% from 2010, according to the Kaiser Family Foundation/Health Research & Educational Trust. On average, workers pay $4,129 and employers pay $10,944 toward those annual premiums. Some plans won’t let participants add a relative until open enrollment season, typically in November or December. Try to delay your retirement or resigning until you can be added on.
COBRA. Under the Consolidated Omnibus Budget Reconciliation Act, employers are required by federal law to offer COBRA carry-over health and dental coverage for up to 18 months for you and your dependents when you leave your job. The upside is you don’t have to be concerned about preexisting conditions being covered. But it’s expensive. The entire cost of the insurance comes out of your own pocket, plus a 2% administrative fee. Ouch. If you have time before you leave your job, switch to the least expensive health plan during the open enrollment period near your departure date. That way you will have lower premiums when you’re picking up the tab. For more information about COBRA coverage, go to the U.S. Department of Labor.
Join a professional group. Some professional and trade groups, such as a bar association, your church or alumni associations offer health insurance with group coverage rates. Other possibilities: If you’re over 50, AARP.org, is worth exploring. Or research what’s available through a special interest group you’re a member. If you are running a small business, you might check with your local Chamber of Commerce, the Small Business Service Bureau (sbsb.com). In addition, The National Association for the Self-Employed (NASE.org) offers insurance plans. If you live in New York State, for example, The Freelancers Union offers insurance through the Freelancers Insurance Company (F.I.C.). It currently covers about 25,000 independent workers and their family members and offers premiums that are reportedly a third below market rates. Individual plans might run from $225 to $600 per month.
Purchase your own policy. One option for self-employed folks who are in decent health is to sign-up for policies with low premiums and high deductibles, opting for insurance that kicks in for catastrophic illness. You can compare a variety of insurance options in your area at healthcare.gov.
Individual policies can be expensive, particularly if you’re 55 or older. Expect a deductible of $1,000, $2,500 or even $5,000 in order to keep the premium within budget. Premiums vary broadly based on your age and physical condition.
Other online sources to check for availability and get an idea of costs by comparing dozens of health insurance plans that are available in your area include: eHealthInsurance.com, einsurance.com and GoHealthinsurance.com and Insure.com. The National Association of Health Underwriters website (www.nahu.org), can direct you to a local health insurance agent if you prefer to have someone else do your homework. Check with your state insurance commissioner’s office to find out if any complaints have been filed against the agents or the insurers they represent. You can also go directly to the insurer sites for quotes.
Keep in mind these “quotes” can be all over the map and are just there to give you a notion of what it might cost. It will ultimately depend on your individual medical situation and so on. When I went to einsurance.com for example, to compare free personal quotes on an individual policy for myself, there were 27 plans to compare quotes offered through five insurers: Aetna, AARP, Celtic, CareFirst BlueCross BlueShield and Kaiser Permanente. The estimates ranged from as low as $135 To $764 per month based on my gender, age–51, my zip code in Washington, DC, and no tobacco use in the last 12 months. Dental coverage ranged from $16.14 to $60.90 and vision came in at $14.99 a month. Of course, there were co-pays and office visit charges and annual deductibles from $750 to $5,000.
You might look for a policy that works in combination with a health savings account, which may offer some tax benefits when you need to pay for out-of-pocket medical bills. An HAS permits you to contribute pretax money that you can use tax free for future medical expenses. For individual coverage, you can contribute up to $3,100 to an HSA in 2012. For families, the maximum is $6,250. And you can contribute an extra $1,000 if you’re 55 or older. For a list of insurers that offer these plans, see HSAInsider.com.
Options to consider: premiums, deductibles, co-pays, coinsurance, and the annual limit you have to pay out-of-pocket before insurance covers the remainder. “Importantly, check to see if your preferred doctors are in-network,” advises Financial Planner Bitz.
Pre-existing condition plans. If you have existing medical problems, many states have high-risk pool programs that can help. If you have been uninsured for six months, have a pre-existing condition, and have been denied coverage, you may be eligible for insurance through a pre-existing condition insurance plan, or PCIP. Every state is required by law to have a PCIP. You might also check into to a “guaranteed issue” plan. For more details about your state’s laws, visit statehealthfacts.org.
Set up a small business group plan. If you hire an employee (your spouse, for instance) you may be eligible to buy a small group insurance plan. This could come in handy, if you have a pre-existing condition. Some states require that health insurers offer guaranteed issue group health plans to small groups. And, presumably, that means that your group can’t be turned down, even if the group has members with health issues. You’ll probably need an insurance broker to help set this up. Some states also have health benefits associations that provide insurance for small-business owners with at least two employees. Go to naic.org for help.
Stay employed. Contemplate getting a part-time job where you can earn enough money to pay for your health benefits. Working just 20 hours a week may also qualify you for group health benefits with some employers. Don’t get your hopes up, though, a meager 16% of all firms that offer health benefits provide them to part-time workers.