What to Do About Health Insurance When You're Self-Employed
There are plenty of ways to get comprehensive health coverage at premium savings
Kerry Hannon has spent more than 25 years covering personal finance for Forbes, Money, U.S. News & World Report and USA Today. She is the author of What's Next? Follow Your Passion and Find Your Dream Job in Your Forties, Fifties and Beyond; Great Jobs for Everyone 50+ and Suddenly Single: Money Skills for Divorcees and Widows. Her website is kerryhannon.com. Follow her on Twitter @kerryhannon.
Until now, I’ve been lucky. My husband worked for a company whose plan covered me, too. But this fall he expects to join me in the ranks of the self-employed. So I’ve started doing research to find an affordable, individual policy.
Health Insurance and Women
I began by comparing potential monthly premiums on ehealthinsurance.com, an online insurance broker. (I'm a healthy, 51-year-old nonsmoker in Washington, D.C.) The highest estimate was $791 a month, about double what my husband has been paying into his employer’s plan for family coverage. But I also found a policy for as little as $191 a month. Annual deductibles for all the offerings ranged from $750 to $5,000.
Struck by the huge variations, I then learned that women often pay more than men for the same coverage, according to a recent report released by the National Women’s Law Center, a nonprofit research and advocacy group. Nearly one-third of plans charge 40-year-old women at least 30 percent more than men for the same coverage, for example. Only 13 states — including California, Colorado, Maryland and New York — have banned gender rating in the individual health insurance market; in those states, women and men of equal ages are charged the same premiums for identical policies.
Fortunately, though, age is in my favor — and probably yours. The National Women's Law Center found that coverage for a 55-year-old woman in some states is just a hair higher than it is for a 55-year-old man. In many states, it’s actually less. That's because women typically don't use more health services than men at that age, as they do when they are younger, according to insurers.
There is, however, one important caveat whatever your age: Individual health policies rarely offer benefits as broad as those in employer-sponsored plans. In fact, more than half of the policies sold to individuals fail to meet coverage standards set by the 2010 health reform law, according to a study published last week in Health Affairs.
If you’re shopping for a self-employed health insurance plan, as I am, here are seven coverage options you might choose from:
1. Your ex-employer’s plan. If you took an early retirement package, you might be able to purchase health insurance from your previous employer’s plan to fill the gap until Medicare kicks in at 65. But it won’t come cheap. A survey of the nation’s largest employers by the benefits consultant Towers Watson found that retirees under 65 with access to their former plans pay a monthly average of $633 for individual coverage and $1,633 for a family — and most companies can revise or revoke coverage at any time.
2. Your spouse’s plan. Your spouse will pay a higher premium for family coverage, but it will still cost less than what you'd pay for an individual policy. On average, each worker pays $4,129-a-year for family coverage, according to the Kaiser Family Foundation/Health Research and Educational Trust’s 2011 Employer Health Benefits survey. Some plans won’t let participants add a relative until open enrollment season, typically in November or December.
3. COBRA. Under the Consolidated Omnibus Budget Reconciliation Act, employers with 20 or more employees must offer health and dental coverage for up to 18 months when you leave your job. You'll pay the entire cost of coverage (more than you paid when you were an employee), plus an administrative fee. For more information, go to the COBRA area of the U.S. Department of Labor website.
4. A professional, religious or other type of group plan. Some groups, like bar associations, churches and alumni associations, offer their members discounted health insurance. If you run a small business and belong to the local Chamber of Commerce, you might be able to tap into its favorable group rates. The National Association for the Self-Employed offers insurance, too, as does the Freelancers Union.
5. A small-business group plan. If you hire one or more employees (your spouse, for example) you may be eligible to buy coverage through a small-business group insurance plan; you need at least two employees to be considered a group. This type of plan could come in especially handy if you have a pre-existing condition, since some states require insurers to offer coverage to small groups regardless of whether any employees have health issues. You’ll probably need a health insurance agent to help set up this type of plan.
6. An individual policy. Compare single plans available in your area at the federal website Healthcare.gov. Check your state insurance department website, too, since it might list health insurance choices for residents. Also be sure to ask your doctors which insurance carriers they accept.
If you’ll be shopping for an individual health policy, compare premiums, deductibles and out-of-pocket costs at such websites as eHealthinsurance.com, GoHealthinsurance.com, Insure.com and Netquote.com. Always check to see if your preferred doctors are “in-network” before you select a plan. Expect to pay an annual deductible of $1,000, $2,500 or even $5,000 to keep your premium costs down.
You also can get a local health insurance agent to shop around on your behalf. Look for one at the National Association of Health Underwriters website.
7. A pre-existing condition plan. Many states have high-risk pool programs known as pre-existing condition insurance plans, or PCIPs, for residents with health issues. If you’ve been uninsured for six months, have a pre-existing condition and were denied coverage by an insurer, you may be eligible for insurance through a PCIP. To find out whether your state participates, visit statehealthfacts.org.
Advantages of a Health Savings Account
If you're going to buy an individual policy, I recommend shopping for a high-deductible plan that works in combination with a health savings account. When you buy insurance this way, you contribute pretax earnings to an investment account where the money grows tax-deferred and you can make tax-free withdrawals for medical expenses. You’ll pay a small annual fee of around $40 for a health savings account from a no-load mutual fund company, like Vanguard or Fidelity.
You can contribute up to $3,100 to a health savings account for individual coverage in 2012 (up to $4,100 if you’re 55 or older). For families, the limit on contributions is $6,250 ($7,250 if you’re 55 or older). For a list of insurers offering these plans, go to HSAInside.com.
While I’m sweating out the hunt for affordable health insurance, I’m also vowing to gobble an apple a day, take Vitamin D and, of course, exercise. I figure that keeping my health up could help keep my insurance costs down.