The Self-Employed Health Insurance Dilemma

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. Self-employed health insurance carries those concerns and 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, including the Afordable Care Act (aka, Obamacare). Reform centers on how to maintain funding mechanisms to support the current over-priced system, or to trim “administrative costs” at the fringes. It doesn’t get to the core of the issue, which is that the efforts at greater funding have lead to a system of perpetually higher costs.

The Self-Employed Health Insurance Dilemma
The Self-Employed Health Insurance Dilemma
At some point, the healthcare system will blow up — a la the mortgage meltdown — and then perhaps a 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 on self-employed health insurance — 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 when it comes to self-employed health insurance.

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

(Note: The Affordable Care Act promises to remedy these issues, but we’ll have to see how it plays out.)

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 better, eliminating bad health habits (smoking, excess alcohol consumption, and dangerous activities) 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.

With the rolling out of the Affordable Care Act, health insurance rates right now may be less than reliable. But it’s safe to say that increasing your deductible from say, $2,000 per year to $10,000 under a catastrophic plan will save you hundreds of dollars per month.

Now it’s true that you will be on the hook for a higher amount in the event of a major medical event, but it could be the difference between having affordable health insurance coverage and none at all. With the cost of healthcare today, a single major medical event can cost hundreds of thousands of dollars and force you into bankruptcy. Catastrophic coverage may not be perfect, but it will prevent that outcome, and give you more treatment options as well.

Here are some other points to keep in mind when buying health insurance:

  1. 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.
  2. 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.
  3. 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.

Self-employed health insurance 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 for your spouse to hold a job with health insurance.

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.

Still another option is to get a get a part time job with health insurance coverage, and they ARE out there. Target, Home Depot, UPS and some of the major department stores, grocery stores and banks offer this coverage. So does Starbucks — and they have a store in nearly every community in the world.

Yet another way to be able to afford health insurance 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. And once you get it up and running, you can use the income to cover your health insurance premiums, without disturbing your regular business cash flow.

If you’re self-employed, or working for an employer who doesn’t offer health insurance, what are you doing to get health insurance coverage?

( Photo from Flickr by Official U.S. Navy Imagery )

32 Responses to The Self-Employed Health Insurance Dilemma

  1. 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.

  2. 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.

  3. 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.

  4. 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.

  5. 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.

  6. 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.

  7. 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.

  8. Excellent post, Kevin. As you say, for the self-employed health is a long term investment. It pays not only to eat well and exercise, but to make sure you’re covered with the right kind of Health Insurance.

    Here in SE Asia where most publicly funded healthcare leaves a lot to be desired Health Insurance is in its infancy. Private healthcare without insurance is simply unaffordable to all but a few lucky souls in the 1%.

    Interesting times ahead.

  9. Interesting times here too Yuen, as we’re getting into a new phase of health insurance with Obamacare. We’ll have to see where it leads, but we’ll have to do our best to work with it and around it in the coming years. Healthcare and health insurance is fast becoming unaffordable here too, even though we’ve had it for decades.

  10. Taking care of your health is a good science in itself – there are a ton of preventative and alternative ways to stay healthy – see maybe naturalnews.com and other sites. I stopped drinking caffeine and pop a bunch of years ago and added organic food, and so on – the yield is more energy and less sickness, etc.

    Cheers, thank you for the wonderful blog

  11. Hi Jerry – I’ve heard that cutting out sugar and salt also increases energy level, but there’s something of a withdrawal factor when you stop using them. The evidence does seem to be piling up that nutrition is something like 80% of our health problems. The problem is that we live in a world that’s awash in fast food and convenience foods.

  12. My wife is self-employed and she has a high-deductible plan for her and the kids. My employer pays for my health insurance and offers a plan for her and the kids, but it’s absurdly expensive. Can she claim the self employed health insurance deduction in this case?

  13. Hi Mike – She should be able to. You can check out the IRS guidelines on that or check with your tax preparer. The fact that you have a plan at work doesn’t invalidate your wife’s deduction as a self-employed person.

    I’ve also heard some horror stories of employers who offer coverage for employees, but charge prohibitive premiums on family members. We seem to be steadily moving away from the days of cradle-to-grave employer benefits packages.

  14. Connecticut only offers two companies now. The rest have pulled out or gone under. I was paying Blue Cross $740 for myself alone in 2016 and the rate was to go to over $800 for 2017 with a $6K deductible. It’s nuts. I dropped it.

    They paid nothing. They only negotiated the bill down a few bucks. I could have done that. My PC offers a 20% discount if I pay the bill directly. Health insurance has only caused the costs to go up. These docs are not stupid. If they know the company will ask for a reduction they simply raise their price so they get what they wanted in the first place.

    As individual payers we are getting screwed. The company employed pay next to nothing and the poor get it for free. That leaves the folks in the middle, who work for themselves, to pay the rest,

    I’m a healthy, 145lb 60+ male and I’m paying for the rest of (actually the majority of) the people out there who chose not to take care of themselves. We cannot have a health care system in this country until people begin to take care of their health. It cannot possibly work and they are now finding that out.

  15. Hi George – Even if the incoming Trump administration doesn’t formally kill Obamacare, it’ll likely die a slow death. Connecticut isn’t the only state where the pool of providers is drawing down. A statistic was recently issued that number of providers nationally participating in the exchanges is expected to decline from roughly 280 down to 210 in 2017. Most states now have only two or three providers. I was at a doctors office a couple of weeks ago, and they had a notification that a major provider is pulling out of New Hampshire on Jan 1. I think that leaves us with just three, or maybe two.

    I completely agree that the healthy are subsidizing the non-healthy, but that’s the nature of health insurance. Pre-Obamacare, providers simply refused to cover people with health conditions. That isn’t right either. But more to the point, the healthcare industry only makes money on the sick, not on the healthy, so why would they seriously promote better health?

    My feeling for a long time has been that the only long-term solution on healthcare will be rationing. You ultimately won’t be able to get the “best care”, but may have to choose between a set of limited treatment options for any condition. Until that happens the situation can only get worse. The problem is that it’s Christmas every day in the healthcare industry, and the rest of the economy can’t support it, any more than it can support runaway government spending or higher education. We should suspect that reality will invade the party suddenly and severely, and only then will we be shaken out of our collective stupor. It’s debatable how much longer this runaway train can keep running.

  16. Hello Kevin:

    You mention rationing. That is kind of the way it is in the countries that have universal health care. Everyone is covered but the wealthy or at least those with decent incomes can chose who they go to for their treatments…and they do. They will use the many private clinics for faster and, in their eyes, better health care.

    My idea, and this will not win many friends I know, is a system whereby your premium is based, at least in part, on your overall health. By that I mean, if you chose to let yourself go and weigh well over the normal weight for a person of your height/age, if you smoke, if you do not get some exercise, your lifestyle choices will be reflected in higher monthly premiums. Once people find out what these choices are costing them perhaps it will induce them to get healthy.

    The US is #2 in obesity after only Mexico and the UK is third. The majority of the people in the US are not just overweight, they are clinically obese. Type 2 diabetes is on the rise and is directly related to your weight. This disease alone will bankrupt the health care system and it can be addressed simply by people getting in shape.

    So simple a fix but are we doing it?

    When was the last time your primary care doctor asked you what you ate? They do not and will not. Diet is the key to fixing the health care system but, as you suggest, there is no money to be made with a country of healthy people.

  17. Let me add one more point, if I may.

    Not allowing the individual to shop for his/her health care insurance in other states or even other countries is blatantly unfair. In what other arena are you prevented from searching for the best deal where ever you can find it?

    More competition can lead to competitive pricing and lower costs for the consumer.

    I live in Connecticut. At one time Hartford Connecticut was called “The Insurance Capital of the World”. That’s all well and good.

    But, I cannot afford to buy insurance from any of these Hartford companies. My car, my home and my business insurance are all from out of state firms that offered me the better deal.

  18. Hi George – I wouldn’t doubt that some sort of lifestyle-related risk adjustment will be in the mix, along with rationing. At the same time, we can’t go back to penalizing people with preexisting conditions like the old system did. That effectively excludes the people who need health coverage the most. But no matter how it plays out, there will need to be major changes going forward. We can no longer afford the pay-any-price system we have now.

  19. That’s true George, but it’s further evidence of the growing healthcare oligopoly/monopoly we’re steadily moving toward. I believe that the government is trying to gradually move us toward a single payer system, but it’s getting progressively more expensive the closer we get. I think we’re really a lot closer to healthcare oblivion than most of us care to believe. The days of the easy options are long gone, and the greater the dysfunction in the system, the fewer good options we have. I’d like to be more optimistic, but there’s little evidence that we should.

  20. Kevin:

    Over the holiday I looked into something called “sharing ministries”. It is a faith-based program available from a number of religious organizations in the US. They offer an alternative to traditional health insurance. The good news is some of them are sanctioned by the government and meet the requirement for having health care coverage so you do not have to pay the (IRS) penalty.

    I will explain how it works for the one I am opting to join. You fill out their forms, speak with a representative and, if you meet their (somewhat strict) guidelines, become a member. There are annual dues (less than $100 after the first year) and you pay a monthly “share” in to another members “share box”. Essentially your payment goes to pay another members medical bills. Of every dollar paid in 88 cents goes to pay members medical bills and 12 cents covers administrative costs.

    The monthly rate for a 60+ male like me is under $200 for a one million dollar per-incident plan with no deductible. Compare that to Blue Cross at $800 per month with a $6K deductible for me if I had continued in 2017. The docs get paid in under 30 days compared to months and they negotiate to get the bills lower much like a traditional insurance company does.

    There are some catches. They do not take everybody and they have strict Christian-value rules. However, for those that can qualify… and I’m hoping I do… the end result will be money saved going forward and peace of mind I have coverage for any major events.

    When I was young you could buy what they called “major medical insurance”. It was cheap and only kicked in for some kind of catastrophic event. Accident, illness, etc. You got it so you would not bankrupt your family if something happened. You were off their plan at age 21… if they had one… so this was the next best thing. That only works until you turn 30, so older folks are out of luck. This sharing ministry system is like that in a way.

    This might be a viable alternative for some but not all. Worth a look-see, though.

  21. Hi George – I’m familiar with the health sharing ministries concept, and agree that it could work better than the exchanges. The two major problems is that 1) you have to be an active member in an evangelical church, and you must ascribe to certain very specific beliefs – not everyone who thinks themselves to be Christian will be accepted. And 2) it works very much like pre-Obamacare in that you CAN be declined for health conditions. As a Christian, I find that hard to reconcile. On the one hand they’re holding members to strict faith positions, but on the other they’re rejecting the most sick and broken. Something about that is unholy! But I fully understand why anyone would want to participate if it’s to their financial advantage. As I said in an earlier comment, we have few options these days, and they’re not always good ones. And as the saying goes, “any port in a storm”.

  22. Kevin:

    I’d rather not specify any company (the information is out there for anyone to find) but the one I’m hoping to join does not force the religious issue at all. I have spoken to them and asked about it, specifically. The fact that I do not have a current place of worship does not matter to them. There are others, the rep said, that do require a pastor’s letter.

    Yes, you can and will be denied entrance if you are already very sick just like the good old days of pre-ACA. This is the only way they can operate at the low rates they offer. My take on that is this. For all my 62+ years of life I have tried to take care of my body. I never smoked at all, drank very little, never took drugs, kept my weight normal and got some kind of exercise every day. In return for that, I have had a relatively “clean” medical record that I’m extremely grateful for.

    Why, in my later years when I can least afford it, should I be penalized (by out of wack health insurance rates) to pay for those who chose not to do as I have done.

    I’m sure there are people who have done just as I have and become ill. My day will still come. It could be tomorrow or years from now.

  23. Dates on these posts would be helpful. 2018 coverage in GA for a family of 5 when you are self employeed start at $1500-1600/month. And that is basically for junk coverage. High deductible ($15k) I guess you get a “free” physical each year. Woo-hoo. obamacare disaster.

  24. This is George, from above. I’m still with the health sharing ministry health plan and still paying $199 per month. I (with their help) was able to get both my GP and at least one large hospital I use to accept their system.

    They have grown tremendously since I last posted. All do to the uncertainty and high cost of Obamacare. I’d be laying close to $900 if I was still in the program. I’m saving $700 a month. Money I can use, believe me.

    It is worth looking into.

  25. Hi George – The health sharing ministries aren’t perfect, but I can’t help but feel that they’ll ultimately be the solution to the healthcare/insurance crisis. It will be a ground up situation (which it is already) that will grow until it dominates the market. It will be a true organic revolution. I think it will expand beyond ministries as well, and hopefully provide options for those who don’t fit the current profile. I’m a Bible believing Christian myself, but these plans exclude too many people. But I believe that will change. Maybe they’ll force the Obamacare plans to finally fold and go away in favor of a true free market option. We can dare to hope. And maybe these plans are a Heaven-sent solution to a problem that our culture can’t/won’t fix.

  26. The ministry I’m with does not make an issue of the religion aspect. I was upfront with them about my lack of church going and they were fine with it.

    That said, they do take your overall health into consideration. Those that have chosen to “let themselves go” may need to complete their “get on track” program before they will accept you.

    Frankly, I have no problem with this. For once, I feel my life long efforts to stay in decent physical shape into my 60’s has finally paid off in lower premiums.

    I make no oppologies for this.

  27. Hi George – Do you mind sharing which ministry it is? (I’m guessing Liberty Healthshare?) I agree on the need to take care of ourselves as part of the overall healthcare package. That’s squarely on us. But there are people who have health conditions that aren’t behavior related. This can include diabetes, most cancers and even certain heart related conditions – not to mention some more exotic diseases. There will have to be a plan for such people. One of the problems I have with the Christian healthshare ministries is that they exclude the most “afflicted”, which isn’t at all Christ-like. At some point they need to step up on that, even if it’s under a different setup.

    The one good thing Obamacare did was to make it illegal for insurance companies to exclude or rate up people with health conditions (other than smoking). We should want to preserve that part of it. But something has to be done to contain costs, and I’ve believed for a long time that rationing of healthcare will be the ultimate solution. Not that we’ll get there willingly or intentionally, but it will eventually be forced upon us. There’ll be boutique plans for the wealthy, then a hollowed out version of the current system for the rest of us. Some politicians are already talking about expanding Medicaid. I eventually see Medicaid and Medicare being combined and expanded into the hollowed out plan for the rest of us. When it is, taxes will go up even as premiums go down.

    Boy, have I gotten off topic or what??? 😉

  28. Kevin: Sharing ministries are not insurance companies. They can pick and choose who their members are. It’s unfair to ask them to take all comers. That’s what insurance is supposed to be for.

    You’re correct. The insurance companies can no longer exclude the sickest, so instead, they raise the rates for all, 25 to 40% each year, year after year. The problem is it is only the individual payers who get hit with these enormous and unjust increases. If you work for a large company or the government, they get off easy because they have a huge contract that protects them.

    As people drop out, as I did, the ACA system will eventually implode. I hate to say it, but on this point Trump is right. It’s a poor system.

    My advice. Stay healthy and keep active. That way you won’t need a ton of medical care until well into your 60’s and 70’s. By then you will be on Medicare.

  29. You’re right George – if only it would work out that way (no major claims until you’re on Medicare). I too see Obamacare blowing up. That’s why I’m concerned with what will replace it. We can only speculate.

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