Do Health Insurance and Self-employment Mix?


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?

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