Health Insurance for the Self-employed
By Jeff Rose, CFP
Finding quality health insurance at an affordable price is a difficult task for everyone. For those who are self-employed, it can be almost impossible. Many individuals turn down the opportunity to start a small business or become an independent professional due to the prohibitive costs of health insurance.
Fortunately, there are viable options out there for paying for health insurance when you are self-employed.
- COBRA (The Consolidated Omnibus Budget Reconciliation Act of 1985) – If you have moved from being employed by another to being self-employed, you can continue your health benefits for up to 18 months through your former employer. The not-so-great news is that said employer will not continue to pay its portion of your insurance plan premium. Translated, this means that instead of paying 20 percent to 25 percent of your monthly insurance premium, you will be responsible for the whole thing. Sometimes this is a good first choice for newly self-employed people, especially if they have any pre-existing health conditions.
- Partner‘s plan – If you are married and your spouse has health insurance through an employer, look into bumping her/his individual coverage to family coverage.
- Individual insurance policies – As long as your health history is relatively unblemished, you can always purchase an individually underwritten insurance policy. If you do an online search, you will find a wide range of choices. Look for one that has the best balance of coverage and cost.
- Group insurance policies – Small business owners are sometimes permitted to create a group and get reduced prices. Some states even allow small business owners to start a group with only one member. Look online to see what is available. If you choose to go this route, speaking with an insurance agent can be helpful.
- Health insurance risk pools – These are plans sponsored by the state in which you live. Specifically created for those people with pre-existing medical conditions who’ve been denied individual health insurance coverage, these risk pools can help those most at risk, but they are often adequate at best. A new high-risk pool was created a couple of years ago under the Patient Protection and Affordable Care Act, and enrollment began in 2010. When this program ends in 2014, those enrolled will transition into state health insurance exchanges.
- Guaranteed issue health insurance – A few states have forced insurance companies doing business within their borders to offer everyone the chance to buy coverage regardless of medical history. Unfortunately, when I say a few, I really mean a few.
- Association-endorsed plans – Many individuals are able to find the insurance they need through groups like the Small Business Service Bureau, the Freelancers Union, or the AARP (American Association of Retired Persons). Trade associations also offer health insurance plans to professionals working in their field.
If you have your heart set on starting your own business and becoming the entrepreneur you’ve always imagined yourself to be, don’t let health insurance stand in your way. If you dedicate yourself to finding what you need, you will most likely be successful. And, because of recent tax law changes, individuals who are self-employed can deduct the cost of health insurance plan premiums from their federal tax income. Good news indeed.
Remember: You can’t always get what you want, but if you try sometimes you just might find you get what you need.
Jeff Rose is an Illinois Certified Financial Planner. He blogs at Good Financial Cents and Soldier of Finance. He loves Crossfit workouts, writes about Roth IRA rules and craves In-N-Out burger. You can follow his updates on Twitter.
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