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Finding Affordable Self Employed Health Insurance

With the downturn and massive loss of jobs (unemployment stands at 9.7% [3]), 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 [4]. Freelancers Union is free if you meet the membership requirements. If you are a member of a warehouse store like Costco [5] or Sam’s Club [6], 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:

Legend: Read this post on health insurance plan types [7] 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 [8])