Health Insurance for the Self-Employed
I would love to own my own business, but I wonder what self-employed people do about health insurance. Do they not have any? I think medical coverage must be a major reason that most people stay at their jobs. Are there ways to get health insurance other than through an employer?
—M.B., San Francisco
Unfortunately, there are an estimated 40 million Americans who don't have health insurance, and many of them are entrepreneurs or people employed at small companies (see BusinessWeek.com, 4/16/07 "Stopping Reform Before It Starts"). Starting your own company doesn't mean that you must take the substantial risk of being uninsured, however. "The truth is that you can buy health insurance yourself, just as you would buy auto or home insurance," says Chini Krishnan, founder and chief executive officer of Vimo, a Web site that provides comparison shopping for health insurance.
If you're currently employed and decide to strike out on your own, see if you can use COBRA insurance as an interim health-insurance plan while you investigate other options. "If you have just left a job that provided health insurance, you might want to continue your coverage under your former employer's plan.
As mandated in the Federal Consolidated Omnibus Budget Reconciliation Act (COBRA), employers with 20 or more employees that have a group health plan are required to offer their employees and dependents the option of continuing their membership in the group plan at their own expense after they leave their job," says Sandy Praeger, Kansas Insurance Commissioner and president-elect of the National Association of Insurance Commissioners. You can continue your health insurance under COBRA for 18 months, during which time you can search for the best option as a self-employed person. Since group rates are usually substantially lower than individual policies, COBRA can offer attractive short-term savings.
Pick and Choose
Some states offer health-insurance programs for home-based businesses. Check with the California Insurance Dept. to see what's available in your state. You should also talk to a broker about insurance policies that are tailored for individuals. "Compare several policies with comparable benefits to see which you prefer. You may be able to get more affordable individual health coverage [if you join] a trade association or small business organization in your state," Praeger says.
Krishnan advises that you realistically evaluate which benefits you need before you shop for individual coverage. "A single man may not need maternity coverage and may be able to save by choosing a plan that doesn't offer such a benefit," he notes. "If you have a small nest egg, consider a plan with a somewhat higher deductible but with lower premiums. In many cases, such plans may represent better overall deals."
Another option to investigate is a health savings account (HSA), which isn't health insurance but a savings plan that offers an alternate way for consumers to pay for their health care. "HSAs enable you to pay for current health expenses and save or invest for future qualified medical and retiree health expenses on a tax-free basis," Praeger explains.
In order to open an HSA, an individual must be covered by a high-deductible health plan (HDHP), sometimes referred to as a "catastrophic" health insurance plan. These catastrophic plans generally don't pay for the first several thousand dollars or more of health-care expenses, but will cover health expenses after you spend that amount out-of-pocket.
If you have a health condition such as diabetes or cancer that would preclude your acceptance by most health-insurance plans, you still have some options, Krishnan says. "Investigate to see if your state offers a guaranteed-issue plan, which is typically used in such situations. These have higher premiums usually. You may be able to purchase an indemnity plan that has a high deductible and may disallow benefits relating to your specific condition but will still offer you protection against unknown health risks," he says.
There are non-health insurance products called "medical discount cards" that will give you discounts for visits to the doctor or other medical services, but Praeger warns that you should be cautious about purchasing one. They aren't regulated by state insurance departments and have been peddled by scam artists in recent years.
For more information about insurance considerations for the self-employed and small business owners, check out Insure U for Small Business, a Web site sponsored by Praeger's organization.
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