FAQs on self-employed health insurance
What options are there for the self-employed or sole proprietors to provide health insurance for their families?
First would be to buy an
individually-underwritten policy on
the open market. If your family
health history is clean its simply a
matter of finding a policy which
offers the mix of benefits and costs
which you are most comfortable with.
There is no such thing as cheap
health insurance -- make sure to
choose a plan with adequate benefits
to protect both your family and your
assets. Most bankruptcies in this
country are caused by unexpected
medical emergencies combined with
inadequate protection -- this may be
an even bigger issue as you grow
equity in your business and have
more to lose.
Are there other ways for the self-employed to keep health insurance -- especially if there is an issue in the health history of one of the family members to be covered?
Spouses often work outside the
family business, just to keep health
insurance and other benefits. In
doing so these spouses can often
keep their families covered under an
employer's group health insurance
plan, which is not individually
underwritten meaning that insurance
usually cannot be denied or premiums
rated-up because of health history.
Guaranteed Issue: A few states, such
as New York, have what is called
"guaranteed-issue" health insurance,
which means companies doing business
in that state must offer you
insurance regardless of your health
history. What that means can vary
somewhat by state statute. In some
state, eligibility may be restricted
to those who can show "continuous
coverage," meaning that you must
already have a plan to be able to
apply and move to the guaranteed
issue plan. Check with a health
insurance professional in your state
before dropping any coverage you
already have.
Health Insurance Risk Pools: In
addition, 34 states have created
health insurance risk pools which
provide individuals or families with
pre-existing medical conditions to
buy a special state-sponsored health
insurance plan, with partial costs
often offset in part by assessments
to health insurance carriers.
Unfortunately, the usefulness of
these state plans are hit and miss.
Some states like Minnesota offer
solid plans with slightly higher
than open market costs. Some other
states have plans that are
underfunded or poorly planned and do
not offer a viable alternative to
most self-employed people. The risk
pools are considered an insurer of
last resort. More on risk pools
here.
What about association-endorsed health insurance plans?
Let the buyer beware. Federal and
state governments have been taking a
close look at "association-endorsed"
health insurance plans, with the
concern that in many cases these
associations have been set up simply
to market health insurance plans.
These plans often use loopholes that
allow them to raise prices to
consumers more aggressively than
they otherwise could.
Can the self-employed deduct the cost of their health insurance premiums?
Yes! Thanks to recent changes in tax
law, the self-employed can now
deduct the cost of their health
insurance premiums from their
federal taxable income (not to
exceed the amount of their actual
income -- in other words, you can't
use your health insurance premiums
to show a loss for your business).
This puts the self-employed on equal
footing with big business, which has
long been able to count health
insurance premiums as a business
expense.
What is COBRA and what can it do for the self-employed or the sole proprietor?
Its an acronym for the "Consolidated
Omnibus Budget Reconciliation Act."
If you work for an employer with 20
or more employees, and you leave
that job, COBRA requires the
employer to offer you the
opportunity to continue your company
health insurance for up to 18
months. However, while on COBRA you
must pay both your normal health
insurance premiums, PLUS the amount
your employer normally paid. This can
provide a way for someone to test
the self-employment waters while
maintaining health insurance
coverage. Make sure to check ahead
of time what your options are
getting health insurance coverage
once your COBRA eligibilty ends.
Some states offer the ability to
move without predjudice to an
individual market plan after your
COBRA eligibity has expired,
provided that you have not let your
coverage lapse. Again, check with a
licensed insurance professional
versed in the laws of your state for
advice.
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