By Kevin M
Health insurance coverage has become a national concern, but no where is the issue quite as close to home as it if for the self-employed. An employee may be concerned with the size of his premium contribution, or with co-pays and deductibles. The self employed business person has those concerns too, and a whole lot more. Like how to pay a premium that’s the size of a house payment but isn’t subsidized by an employer. Or even whether or not he can get any coverage at all.
There’s a lot of debate on health care, but we should expect no true reform and certainly no salvation in the foreseeable future. All of the schemes being devised center on how to maintain funding mechanisms to support the current over-priced system, or to trim “administrative costs” at the fringes. None of them get to the core of the issue, which is that the efforts at greater funding have lead to a system of perpetually higher costs
At some point, the healthcare system will blow up—a la the mortgage meltdown—and then perhaps crisis will break the cost spiral in a way that decades of putting tape and glue on the status quo couldn’t. In the meantime, what do you do to deal with what has become for the self-employed, an almost malicious system?
The first line of defense—take care of your health
When we get busy in life there’s a tendency to let a few things slide; taking care of our health is often one of the first ones to go. This can be especially prevalent during the start up of a new business, or during economic downturns when just keeping a business going becomes a 24/7 effort.
While this is understandable, it can turn out to be a strategic mistake of the highest order. Health lost can be health lost forever. That dilemma poses special problems for the self-employed.
If you’re covered by an employer group plan, the plan must accept you regardless of any health conditions you have—you’re in the plan by virtue of the fact that you’re in the group, which is your employer’s company. Even better, your premiums will be no higher than anyone else in the group. By contrast, when you’re self-employed and relying on private coverage, negative health conditions can result in any one of the following outcomes:
- Paying higher premiums
- Having certain health conditions excluded from coverage
- Denial of new coverage or termination of existing coverage
If you’re self-employed, your health should be thought of as a long term investment. You need good health in order to operate and grow your business, but you also need it to get and keep health insurance coverage. No matter how busy you are in your work, conscious thought needs to go into eating habits, and time needs to be allocated for regular physical activity.
Catastrophic coverage
Catastrophic coverage is health insurance with high deductibles and it can be a godsend if you rely on a private plan, as many self-employed people must. The deductibles can be set at $5,000, $10,000 or even higher.
Many people recoil at the idea that benefits won’t kick in until such high thresholds are reached, but the savings from doing so can more than offset the cost of routine procedures and treatments.
As an example, coverage for a family of four living in Georgia (male, 40, female, 39, two children, non-smokers) with a deductible of $2,000 and $35 co-pays for doctor visits will be $863 per month (via Assurant). If the deductible is increased to $10,000 and the $35 doctor visit co-pay is eliminated, the monthly premium falls to $295.
That’s almost like comparing a house payment with a car payment, but the central point is that even with the car sized payment, you’ll still be covered in the event something major happens and you’re looking at a six figure medical bill. Also, the difference between the two payments is $568 per month, or nearly $7,000 per year—and that alone can cover a lot of medical costs. If those costs don’t materialize, you’ll be that much farther ahead.
Here are some other points to keep in mind when buying health insurance:
- If you’re in good health and don’t go to the doctor more than once or twice a year, you probably don’t need coverage for doctor visits; a co-pay might limit what you pay for a visit, but since the visit is probably only around $150 total, you’ll be increasing your monthly premium substantially for what amounts to a benefit of only around $100 per visit.
- If you aren’t on any ongoing drug therapies, you probably don’t need prescription coverage either. Prescription coverage increases monthly premiums considerably, and if you only have need for an occasional antibiotic, you’re paying for a benefit you aren’t getting. Many health plans will allow you to add prescription coverage later if need be.
- An emergency fund can offset a high deductible. If you have $10,000 or more sitting in a savings account for emergencies, you have room to increase your insurance deductible to $10,000. Bank the money that you save from the higher deductible to cover other emergencies.
Health insurance for the self-employed has to be different from what it is for salaried people, but if you’re in business for yourself, you already know that being different is virtually a way of life.
Low cost health care options
OK, save a bunch of money with catastrophic coverage to handle medical disasters and we’re on our own for the little stuff. But there are a few things that can be done to control those as well.
Doctor visits. If you don’t have doctor visit coverage under your insurance plan, take advantage of the clinics at chain pharmacies. Not only are they much cheaper than formal doctor visits, but you can walk in, the wait—if there is one—is usually short, and they’re open more hours. They’re staffed by nurse practitioners who can handle the routine matters that usually bring us to the doctor.
My wife went to one of the Walgreen clinics for what turned out to be an ear infection. It was $45 for the visit, and an inexpensive anti-biotic cleared up the problem in a few days. Under our current plan, we would have paid a $40 co-pay at a regular doctor’s office. Translation: she got primary treatment at a Walgreen’s clinic for roughly the cost of a co-pay.
Prescriptions. If you don’t have prescription coverage, ask the pharmacist for an over-the-counter equivalent. Most prescription drugs are prescription only for a few years, then they’re converted to over-the-counter. Prilosec and Prevacid (digestive ailments) are two such examples and I can tell you from experience that Prilosec gets the job done.
Many large retailers like Sam’s and Kroger offer common prescriptions at very low prices, like $4 for a 30 day supply. You can sometimes get volume discounts on more expensive prescriptions that can add up to substantial savings over the course of a year.
Also, be sure to tell your doctor that you don’t have prescription coverage and ask for a lower cost treatment. And don’t be afraid to ask for free samples—they often have them.
Keep a job just for heath insurance
If you have health conditions that make it either impossible to get a plan, or that require you to take a higher level of insurance coverage than you can afford, you still have a couple of options. The most obvious–if you’re married—is to have your spouse hold a job with heath insurance. That’s my situation right now. Even if the job doesn’t pay well, he or she can still take a job specifically to get the health coverage.
With the extinction of job security however, it pays to think strategically. The coverage should be the least expensive possible, and as close to catastrophic coverage as you can get, that way if the job is lost you may still be able to afford to continue under COBRA. That will buy you an extra 18 months of coverage in the event the job is lost—hey, we’re just marking time here until we’re eligible for what ever is left of Medicare, right?
Still another option is to get a part time job with health insurance coverage, and they ARE out there. Walmart, Sam’s, Barnes & Noble, Home Depot, UPS and some of the major department stores offer this coverage. So does Starbucks—and they have a store in nearly every community in the world.
The cost of a health insurance plan is the overriding problem for the self-employed—there is no employer subsidy to hold it down to a manageable level. One way to deal with this is to create a dedicated income stream to cover the cost of your health insurance. If you’re interested in this approach, check out my post The Freelance Blog Writer Side Hustle. This is a business that’s easy to enter and can blend very well with what ever business or job you have now.
If you’re self-employed, or working for an employer who doesn’t offer health insurance, what are you doing to get coverage?
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The Perfect Side Hustle: Freelance Blog Writer
Hey Kevin, Being self-employed, I learned another very important point. Your insurance premiums can be tax deductible. That means that in many cases, it may actually be worth it to pay extra for lower deductibles because if you were to just pay the deductible instead you wouldn’t get the tax benefit. Of course figuring out exactly what plan to take (premium vs deductibles) is a real pain in the butt and sometime I need to even whip out a spreadsheet to see where the “breakeven point” is.
Hi Geoff–That’s a good point, it’s like the government is paying part of it, so why not go for premium coverage. I think that can work if you’re in the higher tax brackets, but you do have to be careful if you aren’t. If you’re in the 15% bracket, you’re paying $100 of premium for a $15 benefit. Then even if you are in the higher brackets, if you don’t have heavy medical expenses, you’ve paid for a low deductible to cover expenses that didn’t happen.
I think that under the best of circumstances, it’s one of those things that will work out in some years and not in other. It may not be something we can plan around.
I have no idea what your employment is but your article deals with an area I have worked in for 24 years. I am a licensed Life/Health Insurance Counselor. When I act in that opinion, I do not get paid by insurance companies. My income is based on consultation fees. I have no reason to support or admonish insurance companies. They are merely companies that provide clerical services for people to pay bills doctors and hospitals charge for medical care.
You are only partially correct but you do not allow for differences between state requirements. I work with the self-employed to get health insurance on a daily basis. You are correct that it can be expensive. You practice hyperbole when you say it is the same as a house payment. My average client is paying less than $ 600 a month to insure their entire family. I have only one client paying more than $ 1000 a month. She came to me to help her with her paperwork and would not use me as a consultant. The level of premium she is paying is merely because that is what she wanted to pay. After her, the largest premium any of my clients is paying is $ 802 a month. I grant that is too expensive but it is a far cry from a house payment.
In my state, the average individual health insurance is only 60% of a group plan. I wholly disagree with your advice that a spouse should retain their employment just to keep health insurance. If they wish to remain at work because they enjoy their job or another reason, more power to them. The idea of remaining in a job just for health insurance is ludicrous.
Your article assumes that people only have a choice of group health insurance. In some states, that may be true but it is not an absolute at this point in time. If someone is having problems finding health insurance, they need to speak with an insurance agent or licensed Insurance Counselor to learn their options. In my state, the only reason for anyone to remain a dependent on a group health insurance policy, unless their spouse’s employer is subsidizing family coverage as well, is if they have been treated in the last 2 years for a health condition or if they are a female in child bearing years.
Other than those 2 circumstances, a self-employed individual can find lower cost, comprehensive insurance in my state for more of a car payment but they do not have to settle for a high deductible, catastrophic type plan unless that is what they want.
I hope that the purpose of your post was not to frighten people with your opinions rather than facts. I just want to encourage you to research your comments and know your audience before you write again about such a divisive issue. What you say may be true in your state, but your blog is published nationally. What you are saying is not true in my state. It spreads misinformation and scares people. They make decisions based on fear rather than facts. It only makes my job harder.
Hi Tim, thanks for your response. What state are you in? Most of the self-employed I know are dealing with the same issue (ridiculously high premiums). One had his premium raised to nearly $500–and that’s just for one person! Another is maintaining separate policies within one family, just to keep the premium a little below $1000. And this isn’t the most expensive state for health insurance either.
Most of the self-employed are already “scared” about health insurance–I’m not creating that fear, I’m trying to address it.
People who work for themselves come in all different shapes, sizes, ages, and incomes. Consequently, there’s no one-size-fits-all approach to self employed health insurance for Americans. You need to evaluate both your current situation and your business’s future before you choose a health plan.
That’s also at least part of what makes self-employed health insurance such a dilemma!
I understand where Tim is coming from. Yes, individual or self employed health insurance is generally more expensive than group or employer based health insurance, but we should also look at cases were people have benefited or received reasonable rates for their insurance coverage – it may be a policy that doesn’t work for everyone, but for a select few it’s the best investment option they have.
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True, it’s always best to investigate for yourself. Health insurance prices vary from person to person and from location to location so even if a plan doesn’t work for someone else it might work for you. There is a plan out there for every individual, it’s just a matter of doing a lot of digging to find it.
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