Health Insurance for Self-Employed - Protecting Your Business's Greatest Asset
© 2002 Elena Fawkner
"I've been considering quitting my full-time job and getting a part-time job that would pay bills [so I can start a home business] ... The one biggie my full-time job provides me now is health insurance. If I was to get a part-time job, I'd probably have to pay for my own health insurance and I know that can be expensive."
Like Jason, who sent me above email this week, many a dissatisfied employee would chuck in their full-time J.O.B. (just over broke) for their part-time home-based business in a heartbeat if not for one thing. Employer-provided health benefits. It's a biggie, no doubt about it.
Undeniably, employer-paid or -subsidized health benefits are one of few real perks of working for someone else. In fact, surveys have shown that, for employees (especially those with families), paid benefits are hands down most important element of their compensation packages.
And there's no shortage of people already running their own home businesses with no health or disability coverage at all. Scary. After all, if you're dependent upon your home business as your sole source of income and you lose your health, you lose your livelihood as well.
Bottom line? If you run a home-based business you can't afford not to have health coverage of one form or another. Here's how to make it happen, whatever your circumstances.
BASIC OPTIONS FOR THE EMPLOYER OF ONE (YOU)
You have three basic options when it comes to health and disability insurance.
=> Spouse Coverage
If your spouse has health coverage from his or her employer, as a general rule, use that. It probably provides better and less expensive coverage than you could get on your own.
=> Group Health Insurance
The main advantage of group health insurance plans is that they can't turn you away because of health problems. The good news for solo entrepreneur is that an increasing number of companies are offering group health plans for "groups" of one. This varies by state though so you'll need to do your homework to find one.
=> Individual Health Insurance
These plans are fine if you don't have any pre-existing medical conditions. (If you do, try your best to find a group plan that will cover a group of one.) They're subject to medical underwriting so your state of health will be a factor insurance company takes into account in determining whether to accept your application.
Of course, mere fact that you're able to get into a good plan is one thing. Doing so affordably is quite another.
REDUCING THE HIGH COST OF HEALTH INSURANCE
There are several ways of minimizing cost of health insurance. Your tolerance for risk will determine which, if any, you are comfortable with.
=> Reduce Level of Coverage
Do you really need to have every doctor's visit and prescription covered? If you only go to doctor once a year for an annual examination, have no health conditions, don't need regular expensive prescription medications and are generally healthy, consider cutting out coverage for office visits and prescriptions.
=> Higher Deductible
Similarly, if you're reasonably healthy, don't visit doctor very often and don't need to use expensive medications, consider switching to a higher deductible to save on premium costs. By increasing your deductible from $100 to $2,000, you can cut your premium payment in half.
=> Annual Premium Payments
If you can afford to do so, pay your premiums annually rather than monthly or quarterly to avoid service fees and to take advantage of prepayment discounts where available.
=> Join Associations
Just because you're going it alone in your business doesn't mean you can't take advantage of group buying power that being a member of an association offers. Check out your local chamber of commerce, various trade and professional groups and small and home business associations for member benefits. Many offer access to discounted health insurance.
Here are a few small/home business association links to get you started (you'll need to cut and paste some of these links if they wrap to next line):
National Association for Self-Employed http://www.nase.org/nase_benefits/health_benefits.asp American Association of Home-Based Businesses http://www.aahbb.org/benefits.htm Home Office Association of America http://www.hoaa.com/allbenefitsnew.htm National Business Association http://www.nationalbusiness.org/NBAWEB/Directory/Internal_Pages/Member_Benefits/Health.htm
Don't forget to check out local associations in your area or associations relevant to your particular profession.
=> Shop Online
Being able to offer insurance products online means insurance companies save on broker and agent fees. Often, this translates into premium savings for policies purchased over Internet. So, when your fingers do walking, make sure they do so on a keyboard and not Yellow Pages.
=> Medical Savings Accounts
Under Health Insurance Portability and Accountability Act (HIPAA), if you're self-employed you may be eligible to use a medical savings account, or MSA.
MSAs work in conjunction with higher deductible health insurance policies to reduce premiums and allow you to use pre-tax dollars to pay for your medical expenses up to limit of deductible on your insurance policy.
Basically, you reduce your premium by replacing a low- deductible policy with high-deductible policy and use premium saving to make fully tax-deductible contributions to your MSA. You can contribute up to 65% of deductible each year into your MSA (75% for families). The money goes into a tax-deferred account or trust and you pay your medical expenses (until you reach deductible) by drawing from account. Once you hit deductible, of course, insurance policy kicks in.
If you spend less than you contributed, surplus stays in account and earns interest. Not only that, funds can be invested in high-return vehicles such as mutual funds and stocks.