Group and Small Business Health Insurance Options Explained

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Health Insurance for the Self-Employed - Protecting Your Business's Greatest Asset

© 2013 Elena Fawkner

"I've been considering quitting my full-time job and getting a
part-time job that would pay the bills [so I can start a home
business] ... The one biggie my full-time job provides me now
is health insurance. If I was to get a part-time job, I'd probably
have to pay for my own health insurance and I know that can
be expensive."

Like Jason, who sent me the above email this week, many a
dissatisfied employee would chuck in their full-time J.O.B.
(just over broke) for their part-time home-based business in
a heartbeat if not for one thing.  Employer-provided health
benefits.  It's a biggie, no doubt about it.

Undeniably, employer-paid or -subsidized health benefits
are one of the few real perks of working for someone else. 
In fact, surveys have shown that, for employees (especially
those with families), paid benefits are hands down the most
important element of their compensation packages.

And there's no shortage of people already running their
own home businesses with no health or disability coverage
at all.  Scary.  After all, if you're dependent upon your
home business as your sole source of income and you
lose your health, you lose your livelihood as well.

Bottom line?  If you run a home-based business you can't
afford not to have health coverage of one form or another. 
Here's how to make it happen, whatever your
circumstances.

BASIC OPTIONS FOR THE EMPLOYER OF ONE (YOU)

You have three basic options when it comes to health and
disability insurance.

=> Spouse Coverage

If your spouse has health coverage from his or her employer,
as a general rule, use that.  It probably provides better and
less expensive coverage than you could get on your own.

=> Group Health Insurance

The main advantage of group health insurance plans is that
they can't turn you away because of health problems.  The
good news for the solo entrepreneur is that an increasing
number of companies are offering group health plans for
"groups" of one.  This varies by state though so you'll need
to do your homework to find one.

=> Individual Health Insurance

These plans are fine if you don't have any pre-existing
medical conditions.  (If you do, try your best to find a group
plan that will cover a group of one.)  They're subject to
medical underwriting so your state of health will be a factor
the insurance company takes into account in determining
whether to accept your application.

Of course, the mere fact that you're able to get into a good
plan is one thing.  Doing so affordably is quite another.

REDUCING THE HIGH COST OF HEALTH INSURANCE

There are several ways of minimizing the cost of health
insurance.  Your tolerance for risk will determine which,
if any, you are comfortable with.

=> Reduce the Level of Coverage

Do you really need to have every doctor's visit and
prescription covered?   If you only go to the doctor once
a year for an annual examination, have no health
conditions, don't need regular expensive prescription
medications and are generally healthy, consider cutting out
coverage for office visits and prescriptions.

=> Higher Deductible

Similarly, if you're reasonably healthy, don't visit the doctor
very often and don't need to use expensive medications,
consider switching to a higher deductible to save on
premium costs.  By increasing your deductible from $100
to $2,000, you can cut your premium payment in half.

=> Annual Premium Payments

If you can afford to do so, pay your premiums annually
rather than monthly or quarterly to avoid service fees and
to take advantage of prepayment discounts where
available.

=> Join Associations

Just because you're going it alone in your business
doesn't mean you can't take advantage of the group
buying power that being a member of an association
offers.  Check out your local chamber of commerce,
various trade and professional groups and small and
home business associations for member benefits.  Many
offer access to discounted health insurance.

Here are a few small/home business association links
to get you started (you'll need to cut and paste some
of these links if they wrap to the next line):

National Business Association

Don't forget to check out local associations in your area
or associations relevant to your particular profession.

=> Shop Online

Being able to offer insurance products online means insurance
companies save on broker and agent fees.  Often, this
translates into premium savings for policies purchased over
the Internet.  So, when your fingers do the walking, make
sure they do so on a keyboard and not the Yellow Pages.

=> Medical Savings Accounts

Under the Health Insurance Portability and Accountability
Act (HIPAA), if you're self-employed you may be eligible to
use a medical savings account, or MSA.

MSAs work in conjunction with higher deductible health
insurance policies to reduce premiums and allow you to use
pre-tax dollars to pay for your medical expenses up to the
limit of the deductible on your insurance policy. 

Basically, you reduce your premium by replacing a low-
deductible policy with high-deductible policy and use the
premium saving to make fully tax-deductible contributions
to your MSA.  You can contribute up to 65% of the deductible
each year into your MSA (75% for families).  The money goes
into a tax-deferred account or trust and you pay your medical
expenses (until you reach the deductible) by drawing from the
account.  Once you hit the deductible, of course, the
insurance policy kicks in.

If you spend less than you contributed, the surplus stays
in the account and earns interest.  Not only that, the funds
can be invested in high-return vehicles such as mutual funds
and stocks. 

As the balance can be carried forward, an MSA can be used to
accumulate a pretty healthy nest egg for retirement.  In fact,
a Journal of Financial Planning analysis calculated that if you
contribute $1,500 per year into an MSA for 25 years, assuming
a 12% rate of return, you'll end up with almost $1.5 million. 
That's assuming you don't draw from it to pay for medical
costs, of course.

There are some limitations though.  First, the range of
deductibles is limited to $1,500 - $2,250 for individuals and
$3,000 - $4,500 for a family.  Second, as we saw above, you
can contribute only 65% of the deductible as an individual or
75% for a family.

So, if you're an individual and you choose a policy with a
$2,000 deductible, you'll be able to contribute 1,300 pre-tax
dollars into an MSA each year.  In other words, Uncle Sam
pays for part of your health insurance/retirement fund.  How
fitting.

The money in the MSA can be used to pay any medical
expenses incurred before the deductible is reached, as well
as other eligible costs such as contact lenses and dental
work.  If you use the money for anything else, you must not
only pay tax on the amount withdrawn, but a 15% penalty
on the top.  (If you're over 65 when you make the
withdrawal the penalty is not applied but you'll still have to
pay the tax.)

(By the way, MSAs are also available to you if you work for
a business with fewer than 50 employees.)

In short then, MSAs offer a very tax-effective and potentially
lucrative way to self-fund part of your health care costs while
dramatically reducing your premiums.  If luck is on your side
and you remain healthy, by the time you reach retirement
age, your MSA could well fund your retirement.

Pretty neat.

=> Self-Employed Health Insurance Deduction

Finally, the self-employed can write off 70% of their health
insurance premiums in 2002.  This increases to 100% in 2003. 
That's only so long as the total doesn't exceed the net profit
from your Schedule C minus deductions for one half of the self-
employment tax and Keogh, SEP and Simple contributions
though. 

Also, the deduction can only be claimed for months when
you weren't eligible to participate in a subsidized health plan
from another employer (including your spouse's employer).

Self-employed workers who qualify for both the self-employed
health deduction and the itemized medical deduction can
write off the other 30% this year on Schedule A.  (Medical
expenses are deductible on Schedule A only to the extent
they exceed 7.5% of adjusted gross income.)

WHAT TO DO IF YOU'RE UNINSURABLE

The foregoing is all well and good if you're able to get health
insurance in the first place.  But what if you have a pre-
existing condition that disqualifies you from an individual
health plan and you can't get into a group plan?  In other
words, you can't get insurance at any price. 

=> HIPAA

Although beyond the scope of this article, the Health
Insurance Portability and Accountability Act (HIPAA) may
offer you some protections.  For more information about how
HIPAA may help you obtain health insurance even if you
have a pre-existing condition, visit
http://www.hhs.gov/ocr/hipaa/ .

=> Risk Pools

High-risk health insurance plans, also known as risk pools,
are state-funded plans and are an important safety net for
individuals who are denied health insurance because of a
medical condition.  They're available only in 29 states though.

To be eligible, you must be a resident of the state from
which you seek coverage (unless there's reciprocity
between that state and the state you reside in) and
you must be able to prove at least one of the following:

1.  that you've been rejected for similar health insurance
coverage by at least one insurer; or

2.  you're presently insured with a higher premium; or

3.  you're presently insured with a rider or rated policy.

You will not be eligible for participation in a risk pool if:

1.  you're not a resident of the state from which you seek
coverage (again subject to reciprocity between states);
or

2.  you're eligible for Medicare or Medicaid; or

3.  you've terminated previous coverage in the plan
unless at least 132 months have since elapsed; or

4.  you're an inmate of a public institution.

For more information on risk pools in your state, contact
your state health insurance department, the national
association "Communicating for Agriculture and the Self-
Employed" (1-800-432-3276) or visit
Coverage via the safety-net protections of the HIPAA may
end up being "risk-pool" coverage.

=> Healthcare Savings Programs

Healthcare savings programs are patient advocacy programs
that minimize out-of-pocket healthcare expenses.

They're not insurance policies but rather programs that allow
you to access networks of healthcare providers for the same
negotiated rates that large insurance companies enjoy.
Savings range from 20% to 50%.

Not ideal but better than nothing.  Also, since they're not
insurance policies, all pre-existing conditions are accepted.

A modest monthly fee is usually required to participate.
See, for example, Care Entree at http://www.careentree.com
for $20 per month.

Although health insurance may seem like a luxury you just
can't afford if your finances are already stretched to breaking
point thanks to your home-based business, you never know
what's around the corner.  Quite simply, you and your business
can't afford not to have health (and disability) insurance. 

You are your business's greatest asset.  Protect it.

_________________________

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