The Health Insurance Adventures of an Entrepreneur

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!

The Beginning

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.

Lessons Learned

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.

Related Posts:

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 )

11 Responses to The Health Insurance Adventures of an Entrepreneur

  1. Hi Marshall–Excellent job capturing the health insurance “experience”. No one knows what’s really going on with health insurance until they’ve had to buy private coverage. That’s when you see what a wreck the US healthcare system really is. All we can do is work around it and you and your wife have done a solid job.

    Raising the deductible, dropping unnecessary coverages and shopping regularly for new plans has become the routine for nearly everyone and not just those who have private coverage. Large employers change carriers and/or plans almost annually trying to stay ahead of the steep cost increase curve.

    While it’s definately true that ultimately you end up with catastrophic coverage, there may be no other way. That will not only cover the medical disasters–where we need coverage most–but it will also get you into the hospital quicker and more easily than if you had no coverage.

    There are a couple of unseen advantages to catastrophic coverage too. The first, as you noted, is that it forces us to shop for better prices on healthcare, which we’ll do when it’s coming out of our pockets. But the other is that it also forces us to take better care of ourselves, so we don’t get sick or injured in the first place. It may also keep us from going to the doctor for less than critical care, but of course that can be a negative if taken too far.

    Oh, and one other advantage…high deductibles force us to save money for a rainy day. We should be doing that anyway but this adds a tangible reason to do it.

  2. Thank you for the opportunity to share my story with your readers!

    It is so true that one doesn’t understand what horrible shape the US healthcare system is in until you are footing the bill. As an employee that has health benefits, most people don’t give much thought to the true costs – they just go about their business and seek medical care if/when they need it. No need to shop around when someone else is cutting the check.

  3. It was heartening to find this read and see I am not alone. Just went through my first round of trying to get insurance and being told that since I have asthma, it’s going to cost $50 more per month than it would for anyone else. Never mind that the asthma is well controlled, and I’ve never had an actual attack in my life. I told my girlfriend the other day, it just really brings home the discussions on the national stage about healthcare in a very personal way. I left a job similar to you, and decided to be a social entrepreneur and so it is lost on me how people who cry out about capitalism and entrepreneurism fail to see that our current healthcare system is a disincentive for entrepreneurialism.

  4. Hi Patrick–Your last line about healthcare being a disincentive for entrepreneurialism is right on the money. So many people shy away from self-employment for fear of not being able get affordable health insurance, or any health insurance at all.

    We need more people to be self-employed to improve the job picture and get the economy going, but if people are afraid to do it we’re stuck both as individuals and as a nation. I no longer believe healthcare is a democrat vs republican issue. It has to be fixed.

    I’m coming out with a big picture post about this topic tomorrow.

  5. As a self employed individual, I’d like to recommend Freelancers Union. Its really the most affordable health insurance company I could find. I pay about $300/month for very quality coverage (with low copayments)

  6. I read the article with interest, I know someone who is in a similar situation. My only question is when did the US develop a HealthCare system? Or should we? Why is this a federal matter?

    I see the US as having hospitals, doctors and insurance companies that sometimes work together. No where in the Constitution is there a requirement for health care and I don’t believe the government should be involved. Certainly not at the federal level.

  7. That’s a good question Randy. I think that if anything, government involvement through regulation and providing insurance coverage (about 50% of US residents with health plans are sponsored by the Gov’t, ie, Medicare, Medicaid or government or military employees). It’s all fed the system to excess. No, we don’t have a cohesive system, but we have a hodge podge system that’s heavily subsidized by government. That’s a big part of why it’s so expensive.

  8. Kevin, where did you get that statistic? (50% of US residents with health plans are sponsored but the Gov’t). I can’t find any collaborating information on it.

    True, a lot of people are on Medicaid today due to the state of the economy. However, medicaid is jointly funded by states and the federal government and administered by the states. Expanding medicaid is a part of the Affordable Care Act.

    I’m not convinced that the federal government has made health care more expensive, rather I believe that the growth of “insurance” has made it that way. As you noted, most people want insurance to cover everything and they don’t even have to think about the cost. Your approach, self pay on most, coverage for catastrophic, gives you a real view of the cost. If more Americans had that type of coverage, the demand for “health care” would go down and the cost would go down as well.

    We don’t need the government to take over health care.

  9. Hi Randy – No source on the 50%, it’s an interpolated number presented on other websites. For example, 50 million have no insurance, or about 16% of US population. 84% have coverage, about half private, half government. About 15% are covered by Medicare (gov’t). About 20% are covered by Medicaid. Nearly 20% of the workforce are employed by federal, state and local government, plus the military. Nearly all have medical insurance.

    The 50% number may be and understatement. That means the governemnt already has 50% control (even though it’s via various sub-agencies). We should expect more of the same going forward.

    The scuttlebutt I’m hearing is that Obamacare has been set up to fail so we can go with a true single payer system. That’s pure speculation but it makes for interesting debate, doesn’t it?

  10. I’m not sure I buy the 50% number. Most government employees have private insurance (Blue Cross Blue Shield has a sub-part of their business called Federal Employees Program). Military uses TriCare. And many of those on Medicare also have a supplement (my mother uses Cigna). Saying these are government controlled is like saying my insurance is controlled by my company.

    That said, I do think that we will see increased control in the future. And I don’t think it will lead to lower costs. Saying Obamacare is set up to fail – I think I agree with that, but maybe not in the way you think. I believe it will not work in the way anyone wants and will be patched again and again until it is something no one would recognize.

  11. Hi Randy – They’re not government programs in the strict sense, but all are paid by the government. So 50% of funding (sponsoring) comes from the government in US healthcare. Even though government employees may be covered under BCBS or other private companies, all health insurance group plans are negotiated contracts. This means that the government has considerable control over the management of the plans.

    A loose parallel might be the mortgage industry. Until a few years ago, the “conventional” market was loans sold to FNMA and FHLMC. Those companies were publicly owned (stock on NYSE) but both companies were chartered and controlled by the federal government. When the govt took them over it was just eliminating the public ownership piece.

    Moral of the story is that when government is on the other side of the table, it’s never a true partnership between equals.

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