Unfortunately, health insurance tends to be a “damned if you do, damned if you don’t” situation. But usually it’s a lot more “damned if you don’t.” So let’s do, hike up our pants, and jump into some of our options for self-employment health coverage.
This is the final installment of my 3 part series on the “trifecta of trepidation” – the big 3 Benefits Bogeymen that keep self-employed individuals up at night. In parts 1 and 2, I discussed sick leave and taxes. And I’ve saved the worst for last – health insurance. Seriously though, if it wasn’t for my apprehension around losing health coverage, I would have very likely left full time employment at least 6 months earlier. But this sucker kept me from pulling the trigger.
But now I’m on the other side; relatively unscuffed, and I can say that it’s not that big of a deal. At least not me… [knock on wood]
I’m going to try to keep this one short and sweet. Primarily because I don’t understand this space well at all beyond what I personally evaluated and then ended up choosing for myself. Because there are so many different options, the landscape is constantly changing, and most of all – your specific situation could vary wildly from my own- from the state you live in to your federal income tax bracket, your family’s medical, dental, and eye care needs, and so on. And because I’m not sure whether or not you need – say – prescription medicine, I’m not going to get overly prescriptive with which health care option you should choose – if any.
So I’m simply going to lay out some of the main health care options self employed folks may want to consider, and briefly recap how I ended up choosing my current health plan, and talk a bit about how it’s going so far now that I’ve been swimming in this pond for over a year.
I also have a couple bonus money saving tips. I’ll give you one right now, because I think this is important to talk about up front before you even start shopping around for insurance:
If you have kids, check out CHIP. That is the Children’s Health Insurance Program. It’s a government program that provides free or low cost insurance for children of families that make too much money to qualify for Medicaid, but not enough money to pay full price for health insurance; so like, everyone. It varies state by state: what is covered, who is eligible, and how much it costs – there’s tables and sliding scales and incantations to recite to help reveal – but at the end of the day for a lot of people, it doesn’t cost anything, and the coverage itself is legit. I believe my kids have access to better options now than when they were covered under my employer-sponsored plan.
Again – and I’ll only throw in this qualifier like 5 more times – this option worked out well for me and my family. There might be a better fit for you. But I would highly encourage you to at least explore CHIP. Because it could mean the difference between paying to insure 1 or 2 people and paying to insure 4, 5, 6, 7 people? 19? (Any Duggars reading?)
I think it’s especially helpful for when you’re just starting out and you don’t necessarily have a ton of guaranteed income rolling in, but there is no upper income limit. So even after you become the next Elon Musk (and you will), [Reading Rainbow hit], you can still be eligible for discounted insurance for your kids.
So now we only you to worry about, and your spouse if you have one. What health care options are available for us little chickies stepping away from the warm roost of our corporate hen mommas?
COBRA
The first option your HR rep will probably tell you about is COBRA.
Mad respect for whoever worked on the acronym – Consolidated Omnibus Budget Reconciliation Act is not nearly as cool as it sounds. Nor is it… clear what it actually means? But all you need to know is it’s really expensive stop gap insurance. It allows you to continue your existing coverage for another 18 to 36 months, but you have to pay 102% of the premium. Any portion that your employer was covering, you have to pay now, plus a 2% administration fee – essentially a surcharge for being able to participate in a group plan that you’re technically not eligible for anymore. I could see it making sense if you have an ongoing health condition that you’re receiving treatment for and you don’t have an alternative already lined up. But otherwise, just about any of the following options are going to be more affordable, so let’s scratch this one off.
Marketplace Insurance
Next stop, the insurance marketplace – Healthcare.gov or or your state’s own marketplace. In Pennsylvania we have Pennie. In Delaware I think they have Deli, Colorado has Collie, Hawaii has Hawaii-E… Should I keep going?
Marketplaces or Exchanges are a good bet for a lot people looking for non-employer sponsored insurance. But let’s get a running pro/con list going.
Pro: They’re pretty easy to navigate and compare your different options. The main difference from plan to plan is the price, and they’re organized into bronze, silver, and gold tiers with bronze having lower monthly premium costs but higher deductibles and gold having higher premiums and lower deductibles. The actual coverage will be very similar across all plans because they all must adhere to the Affordable Care Act guidelines which include a pretty comprehensive list of benefits, from maternity care, to covering pre-existing health conditions, mental health services, and more.
Which is nice. If you need it. Obviously comprehensive health insurance doesn’t come cheap, and you might be able to find more affordable options off-exchange if you’re pretty healthy and comfortable with more minimal coverage.
But most people are eligible for subsidies on these exchange plans. And the American Rescue Plan – a Covid relief spending package- is lowering cost even further and extending who is eligible for subsidies.
Find your marketplace and plug in your household income, family size, and some other bits and pieces and you can see your estimated savings and average plan cost.
Example Costs and Discounts
On Pennie, if we brought in $62,000 a year – that’s the average self-employed salary according to Payscale.com – my family of 5 would only need to pay approximately $100 a month after savings.
Up the household income to $80,000, we’d still only be paying about $280/month – roughly the same as what my old co-workers would pay for their share of their employer-sponsored plan.
It’s not until I hit $115,000 do I see the discounts disappear. So there’s a pretty big runway in place.
Caution!
But there’s two crucial things we need to understand about these discounts. 1)The additional subsidies from the American Rescue Plan are set to expire at the end of this year, and when they do, according to a report by the US Department of Health and Human Services, the average marketplace customer will see their premiums double. Bummer.
Still manageable depending on where you fall in the income tax bracket, but that leads us to our second flag on the play 2) the discounts are paid as an “advanced premium tax credit.”
What that means is, if you expect you’re going to earn $62,000 this year, you’re eligible for a certain amount in tax credits – which you can hold off to claim until you file your tax return – but if like most people you opt to have the credit paid in advance to your insurer, you only have have to pay, say, $100 out of pocket each month. And if you did, in fact earn no more than $62K, then you’re good.
But what if you kill it this year, your business takes off, and you bring home more bacon than anticipated? Based on your final income at the end of the year, you might find that you are only eligible for a much smaller credit or none at all. And you’d have to pay back any excess that you received. But you didn’t actually receive anything. The insurers took it, so now you’re digging in couch cushions.
This is why I decided not to go this route. I’m a budgeter – or try to be. And self-employment is already abounding in uncertainty. I honestly didn’t know what to expect income-wise during my first couple years. Buying a marketplace plan felt like purchasing a car and agreeing to pay $1,200 OR $8,000 depending on how things go. And that doesn’t sit well with me.
Private/Direct Insurance Options
I already briefly touched on private off-exchange insurance. You can purchase plans directly from an insurance company. Some of these plans are similar or the same as what you’d find on the marketplace, and the site will sometimes just reroute you back to your state’s exchange. If you don’t want the full, comprehensive, coverage that you’d find on the marketplace – you’re pretty healthy you don’t go to the doctor that much – you can try to find low cost accident insurance or a hospital indemnity policy that will help soften the bill blow in the event of an emergency.
Health Share Ministries & Communities
And then there’s insurance alternatives such as health share ministries or communities. Typically these are faith-based organizations that require members to accept a statement of faith and agree to live in accordance with certain beliefs. But there is a growing number of non-religious health share options as well.
Health shares each have their own ways of handling things, but in general members pay a set monthly fee or contribution in order to be a part of the group, and as medical needs arise, you can submit a request for a reimbursement or for the organization to pay the bill directly. Like insurance plans, there’s usually a deductible you need to pay before you’re eligible for coverage – but they’ll call it something different like an “Initial Unshareable Amount.”
Costs are much less than traditional insurance, but so are the number of eligible procedures and services. Pre-existing conditions and maternity care might not be covered or require a waiting period. If you need medical attention as the result of something that falls outside the community guidelines, for instance, you get lung cancer as a result of smoking, or you get hurt in a car accident because you were driving under the influence – you’ll likely be denied any coverage. Some plans don’t cover preventative care – only emergency procedures. Be sure to research closely what is and is not eligible, and any other limitations on how much or how often you can request a reimbursement for certain services. But if you’re reasonably healthy, and your beliefs align with those of the organization, these plans can be a pretty good solution.
And that’s what my family and I landed on. After checking in to some different options, we signed up with Unite Health Share Ministries. It’s not an insurance company – they are very clear about that – but their plans are structured very similarly to conventional insurance. In fact, if you look at their brochure, it looks like a health insurance brochure. They just change the terminology. Like “Consult fee” instead of “copay.” and Annual Member Care Share instead of “deductible.” I guess insurance companies own these words or something – or it’s their way to make sure they’re not misrepresenting themselves.
There’s no annual or lifetime limits (some other organizations do have a cap), prescription drug coverage is included with most of their plans, and they use the PHCS PPO Network and CVS Caremark Network to connect members to eligible healthcare providers. That is to say, if I’m calling around – who am I kidding, when my wife is calling around to doctor’s offices to see if they accept our insurance, instead of asking if they take UHSM which nobody’s ever heard of, she tells them PHCS, which is the nation’s largest PPO provider network apparently.
I’m paying roughly the same amount as I did when I was employed, and It’s been working out for us so far. That’s as much as I can personally advocate for it.
Do you even NEED insurance?
Of course, you can forego insurance altogether. Which sounds like a terrible idea. But if you only go to the doctor’s once or twice a year, you could very well end up paying less than you would for one month of health insurance premiums. And doctors actually love it when a patient can pay cash on delivery instead of having to wait months for the insurance companies to figure stuff out and cut a check, so offices will usually offer steep discounts for people paying directly. Of course, you could also find yourself in an emergency room, or develop a severe health condition that saddles you with thousands and thousands and thousands of dollars in medical debt. So…. You probably want some sort of safety net in place.
Can you deduct your health insurance as a business expense?
I teased a second bonus tip at the beginning: Whichever direction you end up going, don’t forget you can deduct your health insurance premiums as a business expense.*
*So long as you are not eligible for health insurance through your or your spouse’s employer. And a few other conditions. So if you’re just side-gigging at this point – you probably didn’t make it this far in the video, – or your spouse is employed and has access to a family health insurance plan, this won’t work for you. But in many cases, you can deduct premiums straight from your paycheck and reduce your taxable income. Which is super nice. And a lot more advantageous than taking an itemized deduction on your tax return.
And this got me thinking – there’s some other money maneuvers you can make. Using health insurance and other business expense deductions, HSAs (or health savings accounts), retirement account contributions, and employer matching retirement contributions if your an S-Corp – there are ways to significantly reduce your final income tax liability and have a bit more control over that frightening possibility of earning too much and getting caught having to pay back a ton in advanced premium tax credits. So I’m going to crunch some numbers, and reevaluate some of these options. You go ahead and consult with a tax professional, or reach out to a health insurance broker. There are people out there – who are a lot smarter than me – who can help you find the right health coverage for your specific medical and financial situation.
Final Thoughts
I just wanted to do a quick drive-by of the different options that I researched and considered as I was prepping to make the jump or the long crawl into self-employment. It’s scary to face losing the stability and benefits that often come with a traditional 9 to 5. But they are replaceable. What you can’t replace is the time you spent feeling like you’re not doing what you really should be doing. The time you spent commuting a job that paid well, but cost way too much in lost dinner times with your family.
Sometimes traditional employment is the right decision for you and your family, but if you know it’s not. Then please, don’t let all this stuff hold you back. I figured it out. You can figure it out. Take some time, take some notes, seek out counsel, and start building your own self-employment benefits package, because the benefits of self-employment are totally worth it.
