The Bad News
If you’re one or the growing ranks of Americans who are self employed, you know how expensive it is to get comprehensive health care coverage. Oh sure, it’s available… just not at the same price that large businesses pay as they qualify for group rates.
Worse yet, the premiums which small businesses (less than 200 employees) have for heath insurance coverage is increasing at twice the rate that it’s increasing for large (500+) employees according to William M. Mercer Inc. (http://www.wmmercer.com), a consulting firm specializing in employee benefits. Not surprisingly, an estimated 40 percent of small-business owners do without insurance, according to the Insurance Information Institute (http://www.iii.org), because they believe they can’t afford it.
Because of their high price, too many self employed individuals settle for health coverage that is inadequate. Such business people are threatening not only themselves and their family’s health, but also their business’ very existence should they ever become injured or seriously ill.
The Good News
If you’re planning to leave or recently have left full-time paid employment, you can still retain your existing health insurance thanks to a law known as COBRA (Consolidated Omnibus Budget Reconciliation Act) of 1985. COBRA can provide a bridge for the newly self-employed as it allows you to retain the same insurance coverage at the same price that you had before. As a former employee using COBRA, you have to pay the full premium that your employer was previously paying or supplementing. That is still cheaper than an individual policy, since the coverage is purchased at a group rate. When it expires, you have the choice to continue with that same plan — at an individual rate.
The problem is that COBRA only lasts 18 months, and after that those who are self employed are on their own. However, there are some options that self employed business people have to reduce how much they pay for health care coverage. These are:
1. Use the Internet to Become Better Informed.
Whether shopping for the lowest health insurance rates or wanting to ask medical questions of experts, learning to do research on the internet can make you a more informed consumer, thus bettering your chances of lowering your health care costs. The better educated you are about health care, the more you can avoid unnecessary and/or expensive medical insurance.
2. Get Coverage From Your Employed Spouse.
A common and easy way to get long term health coverage is to add yourself to your employed spouse’s existing policy, and use the extra premiums you’ll have to pay as a tax-write off, of course.
3. Join With Other Self Employed People.
There are strength in numbers so investigate joining a professional or trade organization that offers its members coverage at a group rate discount. Two such groups are the National Federation of Independent Business (http://www.nfib.com) and the National Association for the Self-Employed (http://www.nase.org). However, before joining a group just for its health insurance plan, one should consider the cost of membership in addition to the insurance premiums.
4. Lower Your Level Of Health Insurance Coverage.
If you are healthy and don’t require much medical care, why give the money to the insurance company for low-cost claims when you could keep it yourself? If you choose a higher deductible or a higher co-pay, the money you save in monthly premiums might actually be more than you spend out of your pocket in a year.
5. Reduce Your Chances of Getting Sick.
You know the old saying about an ounce of prevention being worth a pound of cure? Well, this is especially true when it comes to reducing your health care costs. According to Marilyn Furry (Associate Professor Of Extension Education – Penn State’s College of Agricultural Sciences), the best advice to follow to avoid high health insurance premiums as well as out-of-pocket health care expenses is to do the following:
- Take advantage of free health screenings at local clinics, hospitals or health fairs
- Know early warning signs of potential health problems and consult a physician ASAP
- Compare fees and costs for medical, pharmacy and surgical procedures
- Keep accurate medical expenses records so you can itemize these deductions on your taxes
6. Join a Discount Health Benefits Club.
Perhaps the best way to cover any existing gaps in your health insurance is to join what is known as a Discount Health Benefits Club such as Ameriplan (www.ameriplan.com). These clubs offer their membership savings on prescription drugs, dental visits and other health services by charging a fee to connect members with doctors, dentists, vision centers, and chiropractors.
Rising medical insurance costs force many self employed professionals to eliminate coverage in areas like dental, vision and prescription drugs. But with these areas covered when one joins s discount health benefits club, any gaps in the self employed dental, vision and prescription drug coverage are eliminated.
Also, because ‘discounted health benefits’ aren’t insurance, they can be used in conjunction with existing health insurance to lower certain costs and even supplement coverage for both the self employed as well as the self insured. Due to their ability to supplement existing health insurance, discount health benefit clubs must be considered a strong health care alternative for the self employed.
As More People Become Self-Employed, More Options Will Appear
Perhaps the best advice a self employed person can get on reducing their health care expenses is to keep informed about changes in the small-business benefits arena. Organizations such as Working Today (http://www.workingtoday.org) and the National Association for the Self-Employed (http://www.nase.org) are building networks and lobbying Congress to improve access to better health and retirement plans for independent professionals. Consider lending your voice to theirs and maybe someone will here you.
Article originally published in November 2000. Below is the editor’s addendum:
How Obamacare Will Affect the Self-Employed Entrepreneurs
President Barack Obama signed the Patient Protection and Affordable Care Act, also known as “Obamacare,” in 2010, and most provisions of the law will take effect in 2014. With this major change in the health care system, it is important to understand how this law can affect you as a self-employed entrepreneurs. Here are articles on how Obamacare can affect the self-employed entrepreneurs:
- What Obamacare Means to the Self-Employed
- As 2013 Begins, Get Ready For An ObamaCare Tax Onslaught
- How Obamacare Is Changing Your Health Benefits
- Self Employed Hit Hard by Obamacare
Recommended Readings on Self Employed Entrepreneurs and Health Insurance:
- Importance of Health Insurance to Small Business Entrepreneurs
- The High Cost of Health Insurance Will Make You Sick
- Purchasing Health Insurance
- The New Health Insurance Solution How to Get Cheaper, Better Coverage Without a Traditional Employer Plan
About the Author:
- 3 Ways Insurance and Benefit Consulting Can Help Your Small Business
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- Types of Insurance for Your Home Business
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- 5 Commonly Missed Tax Deductions for Small Business Owners