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Do Health Insurance and Self-employment Mix?

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Red-CrossIn my Labor Day post, I talked about the importance of web workers advocating for ourselves, and why it is necessary. One of the topics for advocacy that is on everyone’s mind right now (at least in the U.S.) is healthcare, or more particularly health insurance. This topic is of special interest to the segment of web workers who are self-employed or work freelance.

What exactly is the current state of health insurance for the freelance worker in the United States? There are two key issues to consider: access and affordability.

If you are young and healthy by insurance company standards, you can try to buy an individual or family insurance policy. These policies are purchased as individual contracts from an insurance company, as compared to becoming a group member of an insurance pool that is contracted by an employer or other entity. Anne previously provided some tips about shopping for these policies.

There are a few ways that freelancers can get into health insurance buying groups to get lower rates. Some trade groups, local chambers of commerce, and advocacy groups such as the National Association for the Self-Employed offer discounts on purchasing insurance policies as a member benefit. These programs come with the restriction that people wanting to sign up must meet the health standards of the health insurance company to be eligible for the insurance. One notable exception is a program run by the Freelancer’s Union, which is only offered in the state of New York, and which accepts everyone who meet the group’s membership standards.

If you are self-employed because you own a small business, you may be able to get group rates (and tax benefits) by forming your own small group. You’ll need two or more people who are employees of the business to form a group in most states.

To purchase an individual health insurance policy, applicants have to go through a process called medical underwriting. The insurance company uses this screening process to evaluate the financial risk that you (and anyone else that will be on your policy) pose to them. After filling out your application and health history, the insurance company decides if it can insure you at all, and, if so, what rates it can offer you based on your financial risk.

Stethoscope_webA wide range of medical conditions can cause an applicant to flunk medical underwriting and be denied insurance coverage altogether. Other conditions can result in insurance rates being set ridiculously high; out of reach for most people. Medical underwriting is fairly standard across the industry, thus creating a class of people who are completely uninsurable in the private insurance market.

Some states have created government programs called high-risk insurance pools that sell insurance to people ineligible to purchase insurance through the open market because of underwriting rejection. These pools are expensive, though: members pay premiums that are usually capped at between 150-200 percent of the average market rate.  The programs are usually subsidized by the state’s taxpayers. Around 30 states offer these pools, but the quality of the offerings of the programs vary widely.

Once you have health insurance, then you face the next challenge: keeping that insurance when you need it most. Individual insurance policy holders don’t have the protection of an employer group contract requiring the insurance company to insure them (called mandatory enrollment) to keep an insurance company from canceling their policies. This means that if you are a private insurance policy holder and you actually start needing your insurance, you may find the company using a process called rescission on you.

In health insurance, rescission happens when an insurance company wants to rid itself of a policy holder that is costing it money in large claims. The entire life history of insurance claims of everyone on the policy are examined in detail, looking for any pre-existing diagnosis that wasn’t reported on the policyholder’s application. It then uses this lack of disclosure of any condition, no matter how minor or unrelated to the current claims that are costing it money, to declare the policy void. Any diagnosis code for a chronic condition or risk factor ever recorded on a claim form by a doctor’s office could be grounds for voiding a policy if that condition wasn’t included on the policy’s application form. Forgetting to disclose your spouse’s deviated septum could be used as grounds to cancel your family’s policy if you need expensive cancer treatment.

There a few exceptions to all of these underwriting procedures and rescission concerns: if you live in Massachusetts, New York, New Jersey, Maine or Vermont, your state prohibits medical underwriting, according to

I’ve personally experienced the effects of medical underwriting. I have multiple health conditions that are considered completely uninsurable by health insurance companies. Several times, when I have been cold-called by insurance agents who got my business registration information, I have literally been hung up on in mid-sentence the moment the agent heard the word “lupus” come out of my mouth. They knew they couldn’t sell me a policy so I was a waste of time and they moved on to the next prospect without even a polite sign-off.

Because of all of the things I described above, access to and the cost of health insurance should be a serious concern contemplated by anyone considering freelancing. It can prevent web workers from even being able to consider becoming self-employed, or force them back into working for someone else, because of the change in health status of themselves or a family member. For people who are already self-employed, maintaining health insurance is probably an ongoing concern. Last year, Mike reported that FreelanceSwitch research showed that only 31 percent of web workers in North America had health insurance.

Being young and supposedly healthy isn’t a reason to not worry about insurance. I was a young, healthy 18-year-old, right up until the day a blood test to determine if I had “freshman mono” diagnosed a serious blood disorder that is part of my lupus. Many Twitter users are familiar with the hashtag #blamedrewscancer. This meme sprang up after Drew Olanoff was diagnosed in May with Hodgkins Lymphoma and has become a LIVESTRONG fundraiser. Lightning can strike any of us in the form of a health crisis at any time. That is what insurance is for; if you can get it, and if you can afford it.

Do you have health insurance?

25 Responses to “Do Health Insurance and Self-employment Mix?”

  1. I have been hanging out in the self-employment zone for over 20 years. I have at least 10 employees so we get a group benefit. My profit zone comes at a cost. I would rather have them insured, and nothing happens than not and everything happens.

    My cousin ran a typing service for years, and had to give it up when she got divorced as she needed health and dental insurance.

    As she is now one of our unemployed family members that typing service is standing her in good stead. When her employer asked her if she wanted to continue her health insurance, she had to turn them down it was $500 a month. This was for a healthy person with zero problems, when she checked out insurance policies they were running $110 a month, but it had $5000 deductible attached to it.

    It is a no win situation for her, meet the mortgage payments, feed the children or get health insurance ugly choices all.

  2. I lost my job in January and COBRA just didn’t seem like a viable option. “Luckily” my wife still works and I was able to get on her plan. I think a major part of the problem, as explained very well in this essay by Milton Friedman, is the third-party payment system that so many of us have become dependent upon that has arisen through employer sponsored health insurance and the insurance companies. We need to get health insurance back in control of the consumer and have the doctors working for the patients again, not the insurers.

  3. Running a small consulting services business I had to deal with this issue. In New York State I found that I could get the same group rates as other employers through my payroll services company. That was a huge relief so I was able to afford to keep my insurance even when the business went bad. Sure I had to keep the payroll service but that cost very little compared to the difference between group rates and individual rates.
    As to the fuss in the US — lots of people are simply afraid of change and are wary of even bigger government. They fail to grasp that our current system as it is proceeding will cause an increasing percentage of us to be uninsured. I hope we do not have to wait until 50% of us are uninsured to make the necessary changes.
    Even with my insurance (with significant employer contributions) I am worried about financial disaster. The only policy that I can afford only offers $1,000 per year (per person) maximum perscription coverage. That’s usually enough or close but a major illness would quickly exhaust that limit. Unless you have great credit and/or significant savings one major illness would put you in the spot of not being able to get the medicine you need.

  4. Living in Europe (the Netherlands) I really do not understand how you manage in the US with this system… And when someone tries to change it he is called a liar by someone of your political elite(!) Someone is making a lot of money that he can unleash such an attack.

    You cannot change this in a one man one vote system. This will allow a majority of 80% to deny access to standard health care for the other 20%.

    It is incredible that healthcare is in control by financial institutions, I mean insurance companies. They are proven to be irresponsible and not thrustworthy the last years. And you (and I have to admit, over here it is going the same way) have given them the power to decide over life and death… In a way, you got what you asked for.

  5. Michael Grant

    5 years ago, the insurance industry was very different. I know, I had Cigna and had a family member go through a nasty medical situation. No problems with bills (in any way).

    Fast forward to this year and I’m paying 3-4x the cost for a much lower total cap, higher deductable and lower perchentage of total coverage.

    I’m not self employed, this is employee offered insurance. Now I think i need to go look at an S-Corp.

  6. jeff elohim

    ‘kinda worked’ is ‘kinda kind’ …. way way kind actually.
    how many of you were alive before 1960 ?
    remember that AT THAT TIME (i.e. before 1960)
    doctors were allowed to (legally could) treat you naturally, and they were allowed to (legally could) CURE your cancer, or lupus, or diabetes, with natural non-toxic INEXPENSIVE means.
    the books published the last one hundred years are still
    so you can treat yourself BETTER THAN A DOCTOR CAN LEGALLY (in the u.s.a.).
    I learned all about this in pharmacy school, and in the next few years that I worked in hospital pharmacies,
    until it became obvious that NOWHERE in the pharmacy were they EVER going to allow disclosure of the CURES nor the use of them.
    Now, I just tell people for free the cures,
    many proven by the ama before 1965 in their regular studies etc,
    that licensed drs are prevented now by law from talking about.
    For a start to simple inexpensive true relief,
    of lupus(my wife was diagnosed with that, then got healed 2 decades ago),
    of cancer (thousands still go to mexico every week for inexpensive treatment that works for under $6000 total),
    of diabetes (easy to prevent and to treat if you’re willingj),
    see maureen salaman’s books, et al.
    and start talking to people at a local health food store (like whole foods)…
    you will not be disappointed (except with the almost total cover-up perpetrated by the druglords hand in hand with government)…

  7. Hmm, here in Germany we have a split system. We have public health care and private insurances. The public insurances (there a several different, umm, companies) which offer different benefits. Basic treatments are covered by all but some offer extra services such as alternative treatments like e.g. acupuncture.
    If you’re employed and your annual wage is below 42750€ then you have to be in one of the public insurance (you can choose which one you’d like) and it costs about 15% of your salary (your employer pays half of that, it’s therefore part of the ancillary labor costs), above that you may choose (either staying in one of the public insurances or going to one of the private ones). Being self employed you can always choose.
    Over the last few years several reformations have taken place. Up until the late Nineties of the last century you basically had no additional costs. This has changed. Currently you have to pay 10€ per annual quarter if you need to see a doctor (no fee if you don’t). You also have to pay a small percentage of your medication (chronically ill pay less). Also, if you need to go to the hospital, you have to pay a certain daily fee (I believe 10€). And tooth treatments, at least if you need things like new teeth or a bridge, are also not fully covered (which is why many people have additional private insurance plans).
    So, in the end, most things are covered, other you need to pay for (you can of course always buy optional insurances which cover those costs). And some insurances do cover (at least some of )those side costs which are not covered by default.
    So, health is still expensive but at least it’s somewhat affordable and basic care such as cancer treatment etc. is always covered.

  8. It didn’t work, “kinda”, it worked completely, as specified by contract. The idea of “insurance” is that it is a cost that an individual takes upon themselves to cover unforeseen situations, not something that is freely available after the fact. No other type of insurance causes this muddled thinking, I would not expect to get auto insurance to cover an accident I just had, or expect to buy homeowner’s insurance the day after it burns down to pay for my house.

    All available surveys in the U.S. indicate the vast marjority are pleased with their coverage, and want some tweaks for portability and preexisting conditions. Being self-employed, I don’t have a portability concern. I am empathetic to those who find it difficult to or cannot obtain coverage. But I can’t see why an entire system should be destroyed in favor of making adjustments where needed.

    There are no lies here, I can only report on the entirely positive outcome of our rather abrupt and complete immersion into being a full-time consumer of health care services for many months. Did it cover everything? No, I had a deductible and paid for several adjunctive treatments out-of-pocket. In return, we had tremendous freedom to choose the doctors and other facilities who would provide treatment. Why would I possibly want government intrusion into this process?

    • cpelkie, I don’t expect to change your mind or anything, because your comments seem to stem from a more fundamental/ideological aversion to government involvement (i.e. in not just health care). The problem is, your points IMHO could be seen as just as short-sighted, or rather tunnel-visioned as someone’s who wants to revamp the entire system. This is because of the one fact that many opponents to reform seem to ignore: “it could happen to you.” My point is, essentially you were lucky in your experience–too many are not. In a time where people are unexpectedly laid off, or cannot afford healthcare for their family in the first place, yet are seriously ill, etc., to them the system needs somewhat more than tweaks. 57% satisfaction is hardly the vast majority.

      And I think an analogy to car insurance is as unfair as Obama’s comparison to FedEx and UPS. This is life/health we’re talking about, not things…People cannot earn when they’re not healthy enough to work–which compounds the expensiveness of insurance which can already be daunting for someone who is healthy. There are however many options of transportation if you do not even have a car.

      I’m also curious about the specific government involvement aspects you do not like in Obama’s plan? Is it the public option (which seems like it will be dropped anyway–I don’t necessarily agree with it either) or is it any government involvement period? Because at the end of the day, if you want any of the following in his plan (which even conservatives praise) there has to be laws in the books for it:
      -stop gender, age, and pre-existing conditions discrimination
      -Creation of an insurance marketplace to increase competition
      -tax credits for people and small businesses
      -malpractice reform to curb expensive defensive medicine

      • The analogy to car insurance is appropriate in that we don’t expect Allstate to pay an oil change or new tires, but we do expect Blue Cross to pay for a visit to the doctor for a sore throat. Insurance should cover unexpected and major expenses, not everyday details.

        I have individual insurance, with a large deductible ($1500/year/person). The logical way to handle a large deductible would be for me to pay all expenses until the deductible, then we submit all those expenses and ask the insurance company to start covering from there on out. But no, that’s not the way the system works. Instead, every bill from day one is sent first to insurance; they reject it, then the doctor or other provider sends us a bill. Why? Because every insurance company has a different “allowable charge” for a doctor or blood test or whatever, so we don’t know what we’re supposed to pay until it goes through the insurance company’s computers. But all that back and forth adds a lot of administrative costs, for insurance and for the doctor (and means the doctor has to wait a month or two for payment).

        As David Goldhill explains in his excellent Atlantic Monthly Article, “How American Health Care Killed My Father” (, the fundamental problem is that all the incentives are wrong in the American system, and unfortunately none of the plans Congress is currently discussing do anything to help. The incentives are perverse–doctors and hospitals gain financially from doing more procedures, not for improving health, and we patients/consumers have no direct benefit from being cost-conscious; we think we’re spending someone else’s money, so we never engage in the cost-benefit comparisons we do in EVERY other aspect of life. Is it any wonder that costs spiral, without a significant improvement in overall health? (I read a while back that communities with two hospitals have higher costs that communities with one hospital, because they don’t compete on price; they compete on amenities.)

        Stopping pre-existing conditions discrimination sounds great, until you think about the perverse incentive that encourages–go without health insurance until you have a serious problem, then stick an insurance company with the cost. That’s analogous to cpelkie’s example of buying home insurance after the house has burned down. I think eliminating pre-existing conditions exclusions has to apply only to people who already have meaningful health insurance coverage (whether because everyone is required to have coverage, or simply because they’re switching under the current system). Defining “meaningful” then becomes the challenge–a $5/month plan that provides for one doctor visit a year wouldn’t qualify.

  9. I’ve been self-employed and purchased my own health insurance for going on 30 years now. Yes, it is more expensive than I would like, and yes, we have to pay some out-of-pocket expenses. However, when my wife had cancer 7 years ago, given at most 1 year to live, everything, and I do mean *everything*, in our experience with the medical profession *AND* our health insurance worked out wonderfully. I am truly sorry for others’ misfortunes, but it seems to me that a lot of people go into medical/insurance matters expecting trouble. It is not hard to work with the system as it now is (in the U.S.). I cannot imagine how imposing lack of choice and more beaurocracy can make it better for anyone. My wife is 100% cured.

    • firemouth

      Ahh, so it works, kinda, for you. god forbid someone who needs treated, but cant pay, because his insurance company stole his contributions or was unable to get cover. should get treated.
      Humm, extra layers of bureaucracy. you are better off with extra bureaucracy. than the robbers charter, you have now.

      i must also add, how uninformed most from the US are, on how health care works, in country’s that care for more than $. it amazes me how, so called Political heavyweights, can talk such drivel, about something, they clearly, know nothing about. true its produced an interesting pantomime for the rest of the world to see. but that’s all it is a pantomime.
      uninformed bare faced lies, from these people, does little for the image of the US.

    • The ubiquitous sentiment about imposing government bureaucracy on a system that works completely befuddles me. I have never encountered a government bureaucracy anywhere, regarding anything, that has not been more consistent, fair, accessible, compassionate and (dare I say it) efficient, than any health insurance bureaucracy that I have encountered.

      I simply don’t know why anyone wouldn’t prefer dealing with a government bureaucrat whose job it is to perform a service, even inefficiently, over a health insurance bureaucrat whose job it is to fail to perform the same service.

      I’m self-employed. I pay so much for health insurance that we can’t go to the doctor or dentist. In the event of any medical problem even somewhat major, just satisfying the deductible will bankrupt us. My wife has a chronic non-life-threatening condition that would be improved by consistent medical treatment, but we are limited to mitigating the symptoms with prescription drugs that we pay for out-of-pocket.

      I feel like I’m buying fire insurance on somebody else’s house.

      This system doesn’t work.

      • Claiming that a health insurance bureaucrat’s job is “to fail to perform the same service” is every bit as ideological a statement as a knee-jerk antagonism to government bureaucrats. Big organizations can be hard to work with whether they are for-profit, non-profit, or government. But if the government is in control, there’s rarely an option to go elsewhere if you’re unhappy with the service.

        Insurance companies try to hold down costs because they’re in a competitive market selling the insurance. The problem is that those paying the bills (mostly employers) aren’t generally the ones who are hurt when the costs are squeezed excessively. Again, the incentives are skewed. We’d be better off if insurance were individual (not tied to your job), and only dealt with the type of major expenses it’s not reasonable to expect people to budget for. The challenge is how to get there from here.

      • I stand by my assessment of a health insurance bureaucrat’s job. It is a fact that health insurance claim handlers are incentivized to deny claims aggressively, often legitimately but also randomly and capriciously, counting on some percentage of claimants not having the ability, will, or energy to fight the ruling.

        In my book, this is being paid for not doing your job.

        This is not the case for claim handling for other forms of insurance.

  10. I am beyond lucky that my employer, GOGII, stuck by my side. I was hired less than 2 weeks before I was diagnosed. My start day was after my diagnosis. That’s not only dedication to your employees (which I barely was), thats dedication to a kinder and gentler healthcare system. They’re an amazing group of human beings over there. I love em.

  11. The other option is to incorporate your small business. After being denied everywhere due to a pre-existing condition, I formed an S-corp for my business. Not only was I able to then buy a corporate health plan with Kaiser for $212/mo (down from $650/mo with Cobra before it ran out), I’ve gone on to save a substantial amount on taxes. I wish I had done it years earlier. I stayed in the corporate world a decade longer than I wanted to, because of the fear of not having insurance.

  12. A very timely and well researched article. I am self-employed and do not have health insurance. Because I have diabetes, I am not able to attain affordable health insurance. In Illinois the state has a program for the uninsurable (CHIPPA), but the monthly premium of approximately $750 is beyond what I can afford.

  13. As a voice teacher & opera singer, I have private health insurance for myself and my two daughters. Because I have TMJ & was treated for it by a chiropractor, I have an exclusion for ANYTHING covering the totality of my spine. In the 2 years since we got this policy, the monthly premiums have gone up by $120/month to almost $600/month. We have a high deductible, as well as co-insurance. Co-insurance is a word made up by the insurance company so that the deductibles do not seem so high. Basically, once you have met your deductible (often $1000/person so as to get a “reasonable” monthly rate), you are then responsible for 20% of your bills. So, with one hospital stay, you can easily incur $5000 in charges. And this is with GOOD insurance that you’ve been paying close to $600/month for! We have doctors visits and pharmacy coverage with just co-pays, but for anything serious, we will be out of luck. How many independent workers have that kind of money in the bank (not to mention, that as free-lancers, there’s no sick time. If we don’t work, we don’t earn)? Health care reform MUST happen now!

  14. It is times like this when I really appreciate being Australian. We have universal, free medical cover (Medicare) and strict regulations covering private health insurance. Private health insurers here can’t deny cover or charge different rates based on risk.

    I am self employed and private insurers don’t give a stuff about my status as long as I pay my bills. We have private health insurance to cover us for private rooms in private hospitals and so we can skip the queue if need be. We pay about $2500/year for full cover as a couple. It even includes my massages for my bad neck!