Self Employed Health Insurance
For those who work for themselves, finding a good health care plan – and paying for it – can be a major obstacle to staying in business. The costs are high and the plans are complicated, taking time and resources away from running a successful business. But the other option – going without insurance – can lead to financial ruin should a major medical catastrophe occur.
For most people who are self-employed, health insurance is purchased in the same manner as everyone else. You will sort through quotes, select a provider and fill out an application. What makes your decisions different are the tax deductions available on health insurance for self-employed workers. Additionally, if you have a pre-existing condition, you may have additional options because you run your own business. When you are ready to do so, refer to our guide on purchasing private health insurance plans.
If you are self-employed, you are allowed to deduct the cost of your individual or family health care premiums from your income tax. The deduction only applies to income, not losses. It is an above the line tax break, so unfortunately it does not reduce the self-employment tax. The deduction is only available for months in which you, or your spouse, did not have access to insurance through an employer’s group plan.
This deduction results in a major discount on premiums. Many people prefer insurance plans that feature the high premium model common with employers. With a higher monthly premium, you pay a much lower deductible, lower coinsurance and lower co-pays. Because your premium is tax deductible, this type of plan can be an attractive way to lock in annual health care costs.
However, premiums can be high, even with the discounts. This reality has led to the popularity of high deductible health plans, HDHPs, that come with much lower monthly premiums in exchange for higher deductibles and higher rates of coinsurance. Often the lower monthly premiums will offset the higher cost of a deductible. If you are going to go this route, consider purchasing an HDHP that is Health Savings Account eligible. HSAs allow you to pay for not just your deductible, but a wide variety of medical expenses with pre-tax dollars. An HDHP, combined with an HSA, may result in all your medical costs being written off, even care that is not covered under your health plan, like prenatal care and maternity costs, dentistry and eye care.
The difference in cost between a low or a high deductible plan can vary from person to person and state to state. To get an idea of what your costs would be, play around with quotes on eHealthInsurance. They give you real quotes and don’t require personal or contact information.
Unfortunately, these tax deductions can’t be taken advantage of if you can’t buy insurance in the first place. Often people with even the slightest of pre-existing conditions can find their application rejected. This is scheduled to change in 2014, when the Affordable Care Act disallows insurance providers from taking pre-existing conditions into account when evaluating applications. However, until then there are additional options.
Research potential trade organizations within your industry. Some professional organizations offer access to a group plan for their members. A group plan can often be joined with fewer, if any, restrictions on pre-existing conditions. The Freelancers Union is a popular, and highly regarded example.
Check to see if your state allows “one man groups”. In most states, to purchase a group policy you must have at least 2 employees. However, some states allow group policies to be purchased if you are your only employee. To check, go to healthinsuranceinfo.net. Click on your state, then scroll down to the link that asks “What If I Am Self-Employed?”
If your business plan calls for hiring employees, the sooner you do so, the sooner you will be eligible to purchase a group plan, if it fits your cost structure.
Another option, if available, is to extend your prior employer’s coverage through COBRA. This will be a short term, and expensive route to take. But COBRA can extend your benefits up to 18 months, serving as a bridge until 2014, when pre-existing conditions won’t be an issue.
A final option is to get insurance through your state’s high risk pool, if you meet the eligibility requirements. These pools offer subsidized insurance to people with pre-existing conditions who have had a significant lapse in their coverage. For some, this is the only way to get coverage.