A self-employed person can obtain health insurance in one of three ways. The first is as a self-employed individual, second as a self-employed person in a group, and third in coordination with another job.
INDIVIDUAL
Group insurance is cheaper if the employee is part of a large company, where there is shared risk. But, as far as a small business owner, this is not always the case. The insurance company bases its premiums on the risk factor of how many individuals it covers that are healthy and how many have health problems. Individuals can buy a policy according to their own health needs. If you are in fairly good health, an individual policy will be cheaper.
The cheapest kind of health insurance is one that covers hospitalization only. If you are healthy, it is cheaper to pay $100 for an occasional doctor visit, than pay $500 a month for health insurance. If you go in for surgery, the insurance will pay the $300,000 hospital bill. The higher your deductible, the lower your premium will be.
This high-deductible major medical insurance plan will also allow you to open a Health Savings Account. This is offered through most banks free, and they usually earn interest. You will report it on your income tax form. The IRS has limits as to how much you can contribute to the account each year. You are allowed to spend the tax-free money on approved medical expenses. If you take money out for non-medical reasons, there is a 10 percent penalty.
Either you can compare rates at an online health-insurance-rate comparison company, or you can go to an insurance broker in your town. The online comparison can be done at home. There will be statistics for and links to insurance providers.
The broker, however, can give you tips on the companies you are considering through their experience. Are they fast on paying claims? Do they increase their rates annually? How high of a deductible do I have to take in order to get the best price? They also often have access to smaller health insurance companies that are not listed on web comparison sites.
SELF EMPLOYED
Some states have laws that make it mandatory for self-employed people be offered group insurance. A person can join the state self-employed group, or a group that is related to their line of business, such as a meat packers union, or a restaurant society, or your state university alumni. Most cities have small business associations that you can join and get their group insurance. An insurance broker can save you time by telling you if being in a self-employed group will save your money.
CARRY-OVER INSURANCE
If you are thinking of quitting your job to start your own business, you might do two things first. Check with your personnel department and supervisor to see if you could work part-time and still receive insurance coverage. You might negotiate that you get lower wages in exchange for health insurance.
If you do leave your job, it is the law that companies with 20 or more employees must offer their departing employees COBRA health insurance for up to 18 months. This will continue your coverage, but it will be at a higher cost because you are independent and at a higher risk, but usually cheaper than individual insurance. COBRA gives you time to get your business going and have income coming in, so you can purchase a better policy when COBRA expires.
An advantage to carrying a company-sponsored health insurance policy is that your health problems are covered. If you try to open a new health insurance policy, either these conditions may be excluded for a period of time, or they may prevent you from being covered.
Often times, if you are healthy, the health insurance company will extend to the self-employed individual an offer to extend the coverage at a new premium rate.
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Check the U. S. Department of Labor frequently asked questions on COBRA insurance.
Go to the IRS web site to check for details on setting up a Health Savings Plan. Make sure you are looking at the current year’s rules. See frequently asked questions.
Check to see if your insurance broker is licensed at your state web site. It will have the word “gov” in the link, such as: www.insurance.ohio.gov/Agent/Pages/