The self-employed face a set of unique challenges in finding and keeping health insurance. We’ve provided answers for a few of the most commonly asked questions.
I plan to become self-employed. How do I keep my health coverage?
The brave individuals who become self-employed often preserve their health coverage by taking the initial step of extending their employer-sponsored health benefits through COBRA. The Consolidated Omnibus Budget Reconciliation Act of 1985 allows workers to extend those benefits for up to 18 months after leaving a job. The down side: employers no longer pay their portion of the plan’s premium, which can be anywhere from 75 to 80 percent of a plan’s premium, which can often be 75 to 80 percent or more of a plan’s cost. By keeping the coverage and paying the employer portion, you’ll likely see a huge difference in what you pay for the coverage.
Beyond COBRA health insurance coverage, what are the health insurance options for the self-employed?
One option would be to buy an individually underwritten policy on the open market. If your family health history is clean, it’s simply a matter of finding a policy that offers a mix of benefits and costs that work for you. 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.)
My employer-sponsored benefits covered a pre-existing condition. Can I still get coverage for that condition if I become self-employed?
As long as you continue to pay for COBRA coverage, you cannot be denied coverage for your pre-existing condition. However, if your 18-month COBRA period ends or you decide to leave COBRA to seek individual coverage through the private market, you do risk the possibility that you may be denied an insurance policy. (Not surprisingly, this threat is often a deterrent to those choosing between self-employment and opting to stay in an unfulfilling job which, at least, provides health benefits.)
Make sure – ahead of time – that you know your options for obtaining health insurance coverage once your COBRA eligibility 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.
Are there other ways to keep health insurance as a self-employed individual if there is an issue in the health history of one of my family members?
If you’re married and your spouse is covered under another employer’s group health insurance plan, you may be able to get family coverage that’s less expensive than buying it through the private market. One significant advantage of such coverage is that when your spouse adds your family to his or her coverage, the additional coverage usually cannot be denied – or premiums rated up – because of health history.
I live in a “guaranteed issue” state. How does that help?
A few states, such as New York and Massachusetts, have what is called guaranteed-issue health insurance. In those states, companies doing business in the state must offer you the opportunity to purchase insurance coverage regardless of your health history. What that means can vary somewhat by state statute.In some states, 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.
Is a health insurance risk pool an option where I live?
For years, individuals who have been denied individual health insurance coverage because of a pre-existing medical condition have had the option of turning to state-sponsored health insurance risk pools for coverage. The bad news was that the usefulness of the state plans varied considerably by from state to state. Some states offered solid plans with costs slightly higher than open-market costs, while other states offered plans that were underfunded or poorly planned.
The recently passed Patient Protection and Affordable Care Act created a new temporary national high-risk pool to accomplish the same goal of extending coverage to those with pre-existing medical conditions in every state. States began taking applications for enrollment in 2010. Those who enroll in the risk pools will transition out of them and into state health insurance exchanges when this temporary program ends in 2014.
The law appropriated $5 billion to finance the program with the new pools to be administered directly by a state or a nonprofit entity under contract. CMS had estimated that about 375,000 people may be eligible to sign up for the federally-funded high risk pools.
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 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.
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