By Marshall Davis
This month, my wife and I celebrate six years of self-employment. Another way of saying this is we are celebrating six years of having to pay 100% of our health insurance premiums and related costs. Boy, has it been an educational experience and quite the adventure!
In February 2006, my wife and I could take it no more! We were both employed by a large corporation, stuck in cubicles doing jobs we didn?t like. On the surface, it was a great place to work. The pay was decent, there were holiday and annual bonuses to look forward to, and the health benefits were pretty darn good. What our jobs were lacking was any sense of enjoyment or fulfillment, so something had to be done.
After talking about it for a few months, we decided to quit our jobs and enter the entrepreneurial world. Neither of us had previous self-employment experience, but that wasn?t going to stop us from breaking out of the corporate world and jumping into the deep end, and start making a living on our own. This meant that we were kissing those great health care benefits goodbye, and we had to figure something out to replace them.
The self-employed health insurance dilemma is faced by millions of people, so we weren?t exactly the first to go down this path. If you have never shopped for an individual or family medical insurance plan before, then you don?t know how eye-opening of an experience this can be. Health coverage is expensive!
Our First Plan
After doing a great deal of research online comparing our options, we decided to purchase coverage through Humana. In order to keep prices down, we opted for a high-deductible plan. We don?t have children, which helps keep costs down, but coverage for both of us was still around $215 a month, with a $4000 deductible, which seemed like a bargain when compared to low-deductible plans. Considering we are both in very good health and rarely, if ever, go to the doctors, this was a bitter pill to swallow.
Our first plan did have prescription coverage, but didn?t have dental or vision coverage, something we enjoyed with our employer-sponsored plan. The costs for these uncovered expenses can be significant, especially if you need a lot of dental work and/or have poor vision. It is easy to take for granted great benefits when you aren?t paying the bill.
One Guarantee – The Rates Will Always Increase
Every year, we know one thing for sure – our health care premiums are going to increase on the anniversary of our initial plan. Health care insurance costs are a hot topic with the current administration, and for good reason. They are out of control with costs rising each year, which greatly impacts those of us paying the premium.
Each time we receive our annual renewal notice, we have to figure out what we are going to do to cut our costs. Six years later, we are actually paying slightly less each month then we originally were, but not without having to make sacrifices. Here are a few of the things we have done throughout the years:
Increased our deductible – We originally had a $4000 deductible. Today, it is twice that at $8000, which basically makes our plan only good for catastrophes. In other words, the first $8000 of medical expenses for the year come right out of our pocket. We pay for everything, though at a ?discounted? rate, because we have insurance.
Dropped coverages – For our 2011 renewal, we didn?t want to increase our deductible anymore, as we felt $8000 was high enough. We had to do something to keep costs down, so we dropped prescription coverage.
Shopped around – About once a year, I get so irritated about what we pay for health coverage that I shop around to see if there are better alternatives. Unfortunately, for the type of plan we want, there are not more affordable options, so we have been with the same carrier the entire time.
Health Savings Account (HSA)
One change we made in 2011 was to open up a health savings account, or HSA, through our credit union. An HSA is simply a savings account used to put money aside for qualified medical expenses.
Many things are considered a qualified expense, including your portion of doctors visits and many medical treatments, as well as vision care expenses, dental expenses, and much more. IRS Publication 502 goes into great detail regarding what you can pay for with your HSA funds. Unfortunately, you cannot pay health insurance premiums with them.
A Health Savings Account can offer tax advantages, which is one of the main reasons to use one. You contribute post-tax dollars into your account, but the HSA funds grow tax free and you are not taxed when you pay for qualified expenses. You may also be able to deduct the amount you contribute to an HSA when you file taxes (see your accountant for details).
Not every health plan can work with a Health Savings Account. You need to have a high deductible health plan that meets the US Treasury Department?s criteria. There are annual HSA contribution limits you need to be aware of. For 2012, they are $3100 for an individual plan, and $6250 for a family plan. This means with our $8000 deductible, we are unable to put away enough in our HSA each year to cover our annual deductible.
Would you believe it if I told you that sometimes it costs us less if we don?t use our insurance coverage? For example, my wife recently needed to have a CT scan. It would have cost us somewhere in the neighborhood of $600 if we used our insurance (remember we have a high deductible, so the first $8000 is on us). We learned to not only shop around because procedure prices vary widely between providers, but we also need to inquire what the ?cash price? is. Cash price is simply the amount one pays if they don?t have insurance coverage. In the case of the CT scan, we found a place that cost us $200 at a cash price. We were able to pay using our HSA, but skipped using our insurance, and saved around $400 by doing so.
We have learned that it is incredibly important to shop around when needing a prescription filled. Again, prices vary widely between pharmacies, and we always consider the mail order route if our prescription calls for multiple months supply, as mail order is often times less expensive. Humana has an online tool that is supposed to tell you what local pharmacies charge for a prescription. The problem is, the quoted prices are often incorrect, so we end up calling around to get the actual cost.
A final lesson learned is that nothing in health care is transparent. It is like pulling teeth to find out what our actual costs will be for a medical procedure, or to get a prescription filled. We have asked Humana what our bottom line costs will be, but they claim they are unable to tell us because the contract they have signed with providers prohibits them from doing so. When we ask prospective providers, we are told to ask Humana. Yes, we do feel like we are chasing our tail.
Not to get on a soapbox, but the last six years have really shown us how broken the health care system is in theUnited States. When we had employer sponsored coverage, we could care less what the costs would be because we weren?t paying. Now that everything comes out of our pocket thanks to our high deductible, it is a different story. It is next to impossible to figure out how much something medical related will cost us, when it should be a simple process. It is almost like the medical community doesn?t want us comparison shopping. Could that be?
We would never trade being self-employed for the great medical benefits that corporate life provided. However, if you were to ask me if I missed anything about working for the man, it would have to be not worrying about the finer details of health care insurance.
What?s your health insurance experience? Do you have a story you?d like to share?
Marshall Davis operates Talking Small Biz, a website where he interviews small business owners via his Talking Small Biz interview series, shining a light on self-employed individuals who are doing really neat things.
There IS Affordable Health Insurance IF You Know Where to Look
The Self-Employed Health Insurance Dilemma
How to Buy Health Insurance Without Paying Too Much
What to do if You Absolutely Can?t Afford Heath Insurance
( Photo from Flickr by anolobb )