The jump from W-2 employee to self-employed is one that many don’t dare cross. There are many risks and challenges as a business owner and at top of the list is having to provide your own health insurance coverage. I was fortunate (somewhat) in that when I started my investment firm, my parent company LPL Financial was one of the few independent brokerage firms that offered a group health insurance plan. I was able to get health insurance, albeit at 4 times the price that I was paying previously. If you are the verge of becoming self employed and are seeking health care insurance coverage, here are some of the options that you will have to hopefully find an affordable solution.
Use Your Spouse’s Plan
If you have a working spouse or partner who is enrolled in an employer-sponsored plan, getting on their plan might be the easiest and cheapest solution for your health insurance needs. As I mentioned above, I started off on my firm’s health insurance, but when my wife’s company change providers, we ended up dropping my coverage and going on hers. In all our premiums dropped from over $800 per month to about $250 per month. It was such a huge savings, so we were obviously excited. Nearly all employer-based plans offer coverage to spouses and children, and many provide coverage to domestic partners as well. Simply ask your HR department to see if this is an option for you.
Hail King COBRA
Even though I received my Cobra paperwork, I didn’t have to go on it because I was able to get insurance immediately. If you formerly were employed by an organization that employed 20 or more people and made a group health plan available to employees, you may be able to obtain medical coverage known as COBRA. COBRA requires employers to give employees that are leaving the option to continue their health insurance coverage. You can continue your health insurance under COBRA for yourself and your dependents for up to 18 months. With rising unemployment rates the Department of Labor recently made some changes to rules of Cobra and now will help even more. To stay up on the changes, head over to the DOL’s FAQ page on Cobra coverage.
Enroll in a High-Deductible Plan & HSA
High-deductible plans (HDPs) involve a high deductible or threshold, typically a minimum of $1,100 for an individual and $2,200 for a family, below which you must pay all costs. Generally, if you and your family are in good health, a high-deductible policy might be good for you. Such plans can involve complex cost-sharing arrangements in which certain procedures or visits are covered only in part. When considering this option, factor in not only monthly premiums but also the costs of partial out-of-pocket payment for different procedures.
When combining an HDP with a tax-free health savings account (HSA), you deposit pre-tax dollars into your HSA, and use that money to pay medical expenses that aren’t reimbursed by your health insurance.
We considered going with HDP with the health savings account, but with a newborn son at the time, we had a feeling that we would have more than average doctor visits than in years past. Our hunch was right.
Enroll in an HMO or PPO Plan
Probably the best option for newly self-employed business owners will be to enroll directly in a health maintenance organization (HMO) or preferred provider organization (PPO). In general, HMOs tend to be more expensive than PPOs, but plan costs vary considerably with coverage options, so shop around. Also keep in mind that individual enrollment in a plan is likely to be expensive, often $500 or more per month for individual coverage, and that costs are generally not tax deductible.
Shop Insurance Rates Online
If you can’t find anything at the local level that will fit in your budget, go online and get some free quotes from various providers offering health insurance for the self-employed. One place to start is eHealthInsurance.com. They provide free online quotes for health insurance and offer many different health insurance plans including self-employed, personal, and family.
As a reminder, keep in mind that after you turn 65, you may be eligible for Medicare benefits, even if you remain self employed.