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Summary:

If you’re self-employed or thinking about it and you live in the U.S., one of your biggest concerns is likely to be health insurance. Most people in the U.S. — about 60% according to the National Coalition on Health Care — get health coverage through their […]

If you’re self-employed or thinking about it and you live in the U.S., one of your biggest concerns is likely to be health insurance. Most people in the U.S. — about 60% according to the National Coalition on Health Care — get health coverage through their employers.

But the health insurance outlook for the self-employed is not as bad as you might think. If you are reasonably healthy, you might be surprised how cheaply you can arrange coverage, especially if you choose a high-deductible health plan. And now that health insurers are looking for growth beyond their bread-and-butter large group policies, you could see even better rates as those insurers compete for your health coverage dollars.

The Wall Street Journal reports (behind the subscription firewall, unfortunately) that insurers are turning their attention to the individual insurance market as the large group plan market stagnates:

[Insurers'] core business — selling group plans to large employers — is stagnant. A Bain & Company analysis of the health-insurance sector shows that total commercial health-insurance enrollment has been flat at around 174 million people since 2001. In response to rising costs, employers have steadily pared back benefits, and the percent of businesses offering health insurance has fallen to 60% last year from 66% in 1999. Since the 2001 recession, the number of contractors, part-timers and small-business employees has grown two to six times faster than the economy overall. In contrast, traditional workers — the full-time company employees that provide the insurance companies’ bread and butter — have declined 0.6%. As a result, profit pools in corporate-funded health plans are shrinking.

So what does that mean for you? It depends. It depends on what health issues you and your dependents have, what state you live in, and even what coverage you’ve had in the past, because some legal guarantees only kick in if you don’t drop coverage for too long.

If you are looking for health insurance on the individual market, here are a few tips to guide you:

  • Find a good health insurance broker. A broker who’s knowledgeable about individual policies in your area will be able to help you find just the right health insurance plan for your situation. They can easily check rates at multiple insurance companies, inform you about laws that might apply to your situation, and counsel you about your best course of action.
  • Consider a high-deductible health plan with a health savings account. These plans feature high annual deductibles but allow you to establish a health savings account to which you contribute pre-tax earnings. Because of the high deductibles, the policies are usually quite a bit cheaper than regular policies. And the health savings accounts have a variety of nice features, including long-term accumulation of savings and tax-free interest if you don’t use up the money in the account. It’s a great way to save for future health expenses while keeping the lid on current expenditures for your insurance.
  • Don’t drop coverage. Besides leaving you at risk for financial disaster should you have health problems while uncovered, it also means that if you later get coverage through an employer or other group plan, the insurer may not have to cover pre-existing conditions. The Health Insurance Portability and Accountability Act (HIPAA) says that if you maintain coverage without a significant break (generally defined as 63 days or more), a new group insurer cannot exclude pre-existing conditions, although an individual insurer may be able to, depending on your state’s laws. Always maintain coverage, even if you do so with the most bare bones of policies.
  • Consider COBRA health coverage continuation only as a last resort. The federal Consolidated Omnibus Budget Reconciliation Act provides for continuation of group health care coverage for up to 18 months (or longer if you are disabled) after you leave a job. Although it will cover you if you have no other options, it is time-limited and often very expensive. Do use it to keep unbroken coverage if you need to while waiting for eligibility for another plan, though.

For more advice on health insurance for the self-employed, check our open thread where readers shared their experiences. And let’s hope that America’s next president takes decisive action to help those who cannot obtain affordable health coverage for themselves and their families, even as we each (I hope) find the coverage we need for ourselves and our families.

  1. The problem with a high deductible plan is that you maybe healthy when you get it, and then get sick and you’ll find that a hospital stay, plus drugs, anesthesia, etc etc will be, to say the very least, a nightmare.

    still, high deductible or major medical are better than nothing.

    a recent article in the NY Times explained how – with insurance — having appendicitis surgery ended up costing $3000 on top of the premiums they paid.

    not a small issue on any level.

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  2. Of course the risk you take with an HDHP is that you have to pay the deductible in any given year — in exchange for taking on that risk, you pay less in monthly premiums. In other words, it’s not a bug, it’s a feature. ;)

    The real usefulness and importance of health coverage, like all insurance, is to insure against catastrophic costs, not against the first few thousand (HDHPs usually have deductibles in the $2K-5K range).

    A far graver problem for the seriously ill is the lifetime caps of $1 million or $2 million that many policies have. That’s where you have uncontrollable, unhedgable risk.

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  3. livingbehindthecurve Tuesday, January 8, 2008

    Unfortunately, the HIPAA provision regarding pre-existing conditions only applies to group plans and not individuals. Even if your former employer’s group plan and your new individual plan overlap, individual policies are not required to cover pre-existings, and most do not.

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  4. Thanks for that correction, livingbehindthecurve, I updated the article. I believe the state of Colorado requires individual insurers to waive pre-existing condition exclusions in case of prior creditable coverage — in any case, our individual insurer did after confirming prior coverage. More reason to go with a broker who is knowledgeable about what laws apply to individuals as well as groups.

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  5. I have fantastic individual insurance through Regence Blue Cross Blue Shield of Washington. $500 deductible, huge network, $3k for Rx a year, $10 generics, and they cover everything at 80% — for $164 a month.

    I’m also a diabetic, and in most states it’s impossible to get individual coverage at all, so that makes it even better.

    Regence of Oregon offers the same plan, I believe. Highly recommended for any soloists in the Pacific Northwest.

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  6. I wish I could believe that insurers are now competing in the individual market. I was denied a preferred policy because I took a certain infertility medication and talked to my doctor about infertility. I was referred to a high risk pool at 3 times the cost – way beyond my budget. I appealed three times and I was denied each time. Neither the insurance company nor the agent were willing to work with me or offer alternatives. I am on my own.

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  7. Thank you for this post. I know that this is a big obstacle to many would-be entrepreneurs. I am blessed to have insurance through my DH’s job, but I know that not everyone is so lucky.

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  8. Thanks for the post. For me (self-employed for 1 year, wife and child) I’ve found that good health insurance is a) extremely expensive, and b) the system is broken. Period. See the movie Sicko, then come back. Regan linked the idea of health care for everyone to Communism, and it hasn’t faded yet. Think public education is good? Think retirement is good? They’re supported by the state. But health insurance… Ridiculous. But probably too much $$$$ involved and not enough accountability on the part of our representatives for it to change.

    Sorry for the rant. Bottom line: You’re way off :-)

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  9. [...] for the self-employed are not as bleak as you might think. Anne at Web Worker Daily says in “Health Insurance Outlook for Soloists”: But the health insurance outlook for the self-employed is not as bad as you might think. If you [...]

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  10. There is a huge variability as to which state you live in. I am uninsured and don’t expect to be insured unless I am lucky enough to marry my current g/f. That’s another issue?

    As a moral issue and pure business sense I wish not participate in being an impoverished chump at the behest of the insurance industry which uses fear and extortion to obtain profits at my expense.

    As protection for what? They can dump you at little notice and have doen for many if they become sick and can’t keep paying premiums. Also the emergency room will take limited payments if you are already low income. Insurance makes sense if you have a good deal of wealth and so forth but due to the marginalization of the lower middle class of which I am part… a huge majority of Americans…we no longer have much wealth other than our overlevaged and overfinanced homes and in my case I don’t have that even.

    So I stay healthy, refuse to pay extortion taxes (called health insurance) and worry about both McCain’s and Clinton’s health care proposals which would either do little or nothing or force me to pay into a corrupt system. So far Obama seems to have the most insight into how people like me who have to work in solo or small business formats. I don’t have a grad. degree nor a history of working for large corps. that might offer health insurance and as that sector isn’t hiring anyway…I frankly can’t afford a system that is meant to protect the so-called health care providers, not the customers.

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