By Rich Best
As a by-product of the Great Recession, which created the highest level of chronic unemployment since the Great Depression, the ranks of the self-employed have swelled to historic levels. Many people have found new opportunities to learn, grow and become prosperous in their own right, which is a very good thing. However, among the challenges for the newly self-employed is finding the right kind of health insurance to protect them and their families against the rising cost of health care. Unexpected medical expenses are the number one reason for small businesses to go under, so health insurance is a vital piece of a self-employed business owner’s financial security.
Know Your COBRA Coverage
COBRA was established as a way to protect employees against a loss of health coverage while they are transitioning between jobs. Although the coverage only extends to 18 months, it provides newly self-employed individuals the time to find alternative coverage or accumulate the means to cover basic medical costs on their own.
Individual Health Insurance Policies
For now, there is still a robust market in individual health insurance policies. Unquestionably, insurance rates have been increasing over the last few years, but it is still a relatively competitive market. It’s possible to design an individual plan to meet your budget requirements while providing adequate coverage for your family. HMO plans tend to stretch your premium dollars further if you don’t mind the limitations on provider choice. Working through a broker, you can usually fashion a plan with deductibles and co-pays that make sense and keep your costs down. You can also find plans that emphasize catastrophic coverage if your budget is such that you can pay for most minor and preventative care costs.
High Deductible Plans with Health Savings Accounts
Many self-employed people have gravitated towards high deductible plans with health savings accounts (HSAs). As the name implies, these plans combine a standard medical plan with a specially designed savings account to cover all of your health care needs. The medical plan has a high deductible, in the range of $2,500 to $10,000 a year, but the premiums are very low as a result. Instead of committing your cash flow to a high premium, you can instead contribute it to a tax-deductible HSA. Your contributions grow tax-deferred and when used to pay eligible medical costs, they are withdrawn tax-free. Conceivably, one could use the difference in premium contribution to accumulate enough each year to cover their deductible from their HSA. Once the deductible is paid, the medical plan kicks in with standard co-pays. Unused amounts in the HSA are rolled over to be used in future years.
Health Insurance Cooperatives
Many self-employed people belong to some type of trade organization or cooperative that can provide a form of group coverage with negotiated rates. If they don’t offer their own plan, many are ready to assist their members in finding an affordable individual plan. You could also look into the National Association for Self Employed, which offers a plan that reimburses business owners for costs that are not reimbursed by their insurance plans.
Working with an independent insurance broker experienced in the self-employed and small business community, you should be able to identify health insurance solutions to meet your current needs.
Rich Best has spent 28 years in the financial services industry, as an advisor, a managing partner, directors of training and marketing, and now as a consultant to the industry. He has written extensively on a broad range of personal finance topics and is published on several top financial sites.
The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice. Any views expressed in this article may not necessarily be those of Nevada State Bank or its affiliates.