Self-employed Health Insurance

The self-employed have their own unique challenges in finding and keeping health insurance.

The self-employed typically have to apply for individual health insurance, which is individually underwritten by health insurance companies. This means if you or a family member you need covered have a pre-existing medical condition, you may be turned down for a health insurance policy.

This often can mean the difference between self-employment, or staying in an unfullfilling job which, at least, provides health insurance protection for their famiy.

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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.