Finding Affordable Self Employed Health Insurance

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Red StethescopeWith the downturn and massive loss of jobs (unemployment stands at 9.7%), a lot of people are finding work as independent contractors. Some are finding contract work at fewer than full time. Others are simply seeing employers are now preferring to go with contractors to reduce expenses. Independent contractors don’t require benefits like health insurance, 401(k), vacation, or sick time.

One such person is reader Amanda, who recently emailed me to ask me about self-employed health insurance. I have done research on it in the past but with the current state of the economy, I think I should take a renewed look at self employed health insurance. So without further delay, how to find affordable self employed health insurance and then a brief discussion on why self employed health insurance is different.

How To Find Self-Employed Health Insurance

Before going it alone, you should always try to join a class. If you can’t join a class, then you get individual coverage.

The first place I would check is with a local trade association, chamber of commerce, or some other union in your geographic area.

Next, I’d compare it against insurance offered by the partners of the Freelancers Union. Freelancers Union is free if you meet the membership requirements. If you are a member of a warehouse store like Costco or Sam’s Club, look there as well (you might have to upgrade to a corporate/business membership to qualify) because they offer health insurance.

Finally, if you have to go it alone, one site I see referenced everywhere is eHealthInsurance. I ran a quote just now as a Male, 29 years old, non-student, and non-smoker. They were able to give a sampling of results in a few seconds. Here were some of the results:

  • CareFirst BlueChoice Save $30/$40 – $172/month – HMO with $0 deductible, 0% coinsurance, with a co-pay on office visits of $30 for primary care physician and $40 for specialists.
  • CareFirst BlueChoice HSA – $1,200 – $96/month – HMO with $1,200 deductible, 0% co-insurance, with a $40 co-pay after the deductible.
  • CareFirst BlueChoice Comp HSA – $2,500 – $80/month – HMO with $2,500 deductible, 0% co-insurance, with a $0 co-pay after the deductible.
  • UnitedHealthOne Copay Select 70 – 5000 – $67.43/month – Network with $5,000 deductible, 30% coinsurance, $35 office visit.
  • Kaiser Permanente $30/$40 Plan – $155/month – HMO with $0 deductible, 0% coinsurance, $30 office visits
  • CoventryOne 80% Choice PPO $1000 Ded – $100.94/month – PPO with $1,000 deductible, 20% coinsurance, $25 office visits
  • UnitedHealthOne Saver 80 – $36.66/month – Network with $10,000 deductible, 20% coinsurance, no coverage on office visits

Legend: Read this post on health insurance plan types if you are unclear what the different. The deductible refers to how much you must pay before insurance kicks in. Coinsurance refers to how much you must pay after you’ve exceeded your deductible (so 30% coinsurance and a $1,000 deductible means that you pay 30% of costs over $1,000 and 100% of costs up to $1,000).

Why Self-Employed Health Insurance Is Different

When you work full time as an employee of a company, the health insurance company that covers that company must cover all employees that opt into the plan. If you’ve always worked as a full time employee and wondered what the big deal is with “pre-existing conditions,” it’s because it’s never been an issue for you. The insurance company is required to treat all employees as part of a “class” and cover everyone in that class, or cover no one at all. So you could have all sorts of pre-existing conditions and they can’t deny you coverage.

The system works because healthier employees, who pay more in premiums than they consume in services, subsidize less healthy employees, who pay less in premiums than they consume in services. In the end, the insurance company is hoping that the total they collect in premiums is around the same as the total they pay out in claims. They earn money on playing with the float, like investing and whatnot.

Self employed and individual health insurance is different, and subsequently more expensive, because you’re a class of one. You have no one subsidizing you but you are not subsidizing anyone else.

How To Get Health Insurance Cheaper

Since the name of the game in insurance is risk, you pay less if you assume more risk. So if you raise the deductible and raise the coinsurance, your monthly premiums will go down. If you lower either, your premiums will go up. The lowest price policy in the list above, the UnitedHealthOne Saver 80, had a $10,000 deductible.

A common strategy for self-employed individuals is to buy higher deductible insurances. The idea is to protect against the catastrophe, not the everyday bumps and bruises. If you have a $5,000 or a $10,000 high deductible health insurance plan, you’re doing just that. People usually save the difference in their emergency fund as a form of self-insurance.

Finally, I wish you luck. I was fortunate to be married to someone with health insurance options through her employer. If you don’t have that luxury, I believe the process I outlined above should result in something fairly affordable. If you have done this type of research and have know of good resources, please let us all know in the comments!

(Photo: tessawatson)

{ 22 comments, please add your thoughts now! }

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22 Responses to “Finding Affordable Self Employed Health Insurance”

  1. Kyle says:

    Good bit of info, I think a lot of people put off their dreams of going out on their own simply because of health insurance. My wife and I are extremely fortunate b/c her employer actually foots the bill for our health insurance. It would be a rude awakening to have to start paying these higher premiums.

  2. This is a huge problem right now. More and more people I know don’t have insurance at all, and I often worry for them. Being able to go to the doctor is something that a lot of us take for granted (or avoid, in some cases). But it can save your life. Not a lot matters if you don’t have your health.

  3. Frugal Dad says:

    Good information – particularly on the various memberships one can join to make themselves part of a “group,” rather than going it comepletely alone.

    I plan to one day join the ranks of the self-employed, and will have to look for family insurance coverage since my wife doesn’t work outside of the home. It adds a great deal of risk, and expense, to our bottom line, but with a solid emergency fund I think we can pull it off with a high-deductible plan.

  4. dilbert69 says:

    Not to mention that if you’re overweight (particularly if you’re a woman) or have high cholesterol, even if it’s effectively managed with medication, you probably won’t be able to purchase good health insurance at any price, much less a price you can afford.

  5. David says:

    Of course, that is all great – unless you have a serious pre-existing condition. For example, I cannot get self-employed private health insurance because I have had cancer, so I have to go without.

    • josh says:

      Dear David:
      My wife had similar situation like you. She had breast cancer 20 years ago and she pulled it thru all these years. No company would give her insurance. She got her luck with Mega-life Illinois. May be you get lucky. Good luck.

  6. zapeta says:

    I’m under an employer health insurance right now but before I was employed I just did without insurance. Thanks for the great info!

    • daemondust says:

      I’m in the same boat. Unless something changes they’ll use that uninsured time as a chance to say it’s a pre-existing condition. Yes, it can be a valid excuse on their part (though not necessarily in many of the cases they try it), but I wish they could only use it for a certain period of time, say a year from signing up, and have to pay all claims after that point.

  7. Michele says:

    It might also be a good idea to check into a local small business association. In Cleveland, we have one called COSE – Council of Smaller Enterprises, which offers insurance to its members as a group.

    Of all the plans, I would consider the HSA. You can pay into your account pre-tax, I am not sure of the exact figure but its around $3000 per person per year max. You can use the account to pay for things that most health insurances don’t pay for, like prescription medicines and eye glasses, office visit co-pays, chiropractors, dentists, orthodontists, over-the-counter meds such as aspirin and antacids, birth-control, and laser eye surgery.

    If you don’t use the money, cancel the health insurance account or use it for non-qualified purposes, you have to pay tax + 10% on the money just like an ira.

    • HelloThere says:

      HSA is great way to go if you are a healthy young male that rarely gets sick or injured, does not require regular doctor visits, have no pre-existing conditions and do not require medication.

      This would not be a good fit for older males and women of any age, anyone with pre-existing conditions, or you get ill/seriously ill. The costs far exceed any benefits.

  8. Mike says:

    No offense but there is a lot missing here. The first place to start or at least second would be to talk to an agent. They can give you a quick review of all available plans in your area. Every state is different but at least here in NJ, the prices are the same whether you buy the insurance through an agent, the carrier directly or any other avenue. The rates are the rates. Also, there are many situations where there will be no pre-x. Also, we have an individual health pool, where everyone buying individual health insurance is pooled together and your rate is only determined by your sex and age.

    I can go on and on, but I just wanted to make the point that you really should speak to an agent! Yes, I am an agent and I’ve seen some of the horrible contracts sold on the internet so I get every worried when people try to figure this stuff out without an expert opinion.

    One last thing, don’t forget the ARRA subsidy!!! If you are terminated from your job and lose your insurance, you may be able to continue your coverage and only pay 35% of COBRA premium.

    Good luck everyone and get an agent!

    • daemondust says:

      COBRA is a joke. Last time I looked it would cost greater than 3/4 what my unemployment draw would be, or in many cases MORE than unemployment would cover. Yes, I realize living exclusively on unemployment, even for a short time, isn’t the way to go, but if you’re just barely scraping by before losing your job, you probably don’t have much of a savings to fall back upon.

    • HelloThere says:

      FYI: If employer goes out of business while your on COBRA, your coverage will most likely be terminated.

      Also, if you go without coverage longer than 62 consecutive days then pre-existing conditions my not be covered under the new plan, self insured or employer insured.

  9. Thanks for the details and examples Jim. I’m surprised health care is so cheap! $174/month for the most, and only $30/month for the cheapest? That’s awesome!

    What is everybody worrying about then? The cost is a dinner for two at your local chinese restaurant, or fancy steakhouse with win!

    • Carla says:

      “What is everybody worrying about then?”

      Not everyone is single, young, childless and healthy. Also rates vary depending on where you live. The last time I qualified for private health insurance, I was 27 and was looking at paying $380/month which was a lot of money for me. When I was laid off on disability this past June, my COBRA was going to be $600/mo before the ARRA package. Now that I recently moved out of state, I had to wave COBRA goodbye and now looking into group insurance for freelancers (which I will pay out of the nose for). My case is relatively mild compared what what millions of people in this country is going though.

      That’s what.

  10. Jim thanks for this post. My wife and I will soon be in this boat as my wife will be losing her job in a couple of months, and she’s bee the one carrying the benefits (I’m a contractor).

    I spent some time selling health insurance, and it’s a real nightmare, especially as you get older or if you have pre-existing conditions. For some people, there are no options out there!

    You’ve provided excellent advice, thanks!

  11. No matter what, there will be high deductibles, and probably no prescription coverage. Good luck is something we hope for, don’t have an accident or get sick.

  12. Every state has different rules, but in some states you can create a two person group and then you can’t be denied for pre-existing conditions. You’ll probably need to form a corporation and then make you and your spouse employees of the corporation.

    The downside of this is that you end up with two separate deductibles instead of one family deductible. However it can work if you are careful and do the math so you know exactly what you are getting into.

  13. Carla says:

    I’m still in the process of looking into group insurance for the self-employed since I dont (and maybe never will) qualify for an individual plan. I checked the Freelancers Union link but there isn’t anything available in my zip code. :-/

  14. Damon Day says:

    I have always been self employed and what I do is have major medical coverage for myself and my family. I have an HSA set up for myself and my wife that we contribute into each year. Our deductibles are 2400 a piece. It works out well because we have a PPO witch provides us with much better options than an HMO in my opinion, and our premiums are much lower than if we had something like cobra where you only pay a little copay. I can also deduct the cost of my insurance on my taxes.

  15. Frankly, none of those options looks great. The only one that alleges to cover you more or less completely; after watching my mother die hideously in an HMO (it’s not in an HMO’s interest to admit you have an expensive catastrophic illness — since you’re going to die anyway, they simply will deny you’re sick until you’re so close to death it’s too late to treat you and it won’t cost much to cover the few days or weeks you have left), you couldn’t herd me into an HMO on a bet.

    As for the others: 30 percent of a $100,000 procedure (say…a triple bypass? a kidney transplant? cancer treatment?) is $30,000. You’re sick, you may be disabled to the point where you can’t work, and you’re saddled with a $30,000 debt…and that may just be for starters. That way, my friends, lies bankruptcy.

    And $174/month is not my idea of “cheap.” When you’re unemployed or living on Social Security (you’re not eligible for Medicare till you 65 but can start SS at 62, which in this economy an older laid-off worker may be forced to do), that could represent a large chunk of your income. Since most freelancers earn around 10 grand a year, it’s potentially unaffordable.

    Last time I had to carry my own policy, like Damon I had an HSA. It had a very high deductible, higher than the maximum I was allowed to contribute to the savings account in a single year. Consequently, had I fallen ill in the first year of coverage, the amount in the savings account would not have paid the deductible. Bank fees on the savings account were astonishing. Premiums were high — as much as I had been paying for the most expensive PPO at my employer’s. However, it covered any doctor I chose (not just docs in a network), and coverage was 100%. Lifetime coverage was unlimited.

    The system we have now is just not adequate.

  16. darn… failed to type all the words that were in my head: “The only one that alleges to cover you more or less completely is an HMO; …

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