Top 5 Health Insurance Tips for the Self-Employed

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Thanks to today’s tough job market, more and more Americans are starting their own businesses and becoming “accidental entrepreneurs.” If you’re new to self-employment, or even if you’re an established small business owner, chances are that health insurance isn’t at the top of your priority list.

Maybe it should be. The last thing you want is for unexpected medical costs to slow down the progress of your new venture.

Health insurance does more than just provide you with access to medical care. It also allows you to benefit from the discounted rates that insurance companies negotiate with medical providers. Plus, it limits your financial liability for accidents and injuries that might otherwise put you—and your business—into bankruptcy. If you’re uninsured or looking for more affordable health insurance options, here are five money-saving tips:

1. Comparison Shop

If you want to make sure you’re getting the best health plan for your needs and budget, you’re going to need a broad view of what’s available in your area. You could buy direct from the insurance company, but they’re not going to show you how their plans stack up against competitors. When you shop online through a licensed agent like eHealthInsurance.com you can compare plans from leading carriers in your area, compare rates and benefits, read customer reviews, and apply for coverage. And since prices are regulated by your state department of insurance, you’ll pay the same monthly premium whether you buy online or off.

2. Consider COBRA Alternatives

Many of today’s “accidental entrepreneurs” were recently laid off by former employers. If you were laid off, you may have been offered health coverage through COBRA, the federal program that allows you to temporarily extend your employer-based insurance at your own cost. It’s a good option for many, and the federal government’s 65% subsidy for COBRA premiums can make it even more attractive. But it may still be too expensive. LegalZoom’s partner eHealthInsurance has identified over twenty states[1] where families can save over $500 per year on average by purchasing coverage on their own rather than enrolling in subsidized COBRA. Unless you have a pre-existing medical condition that would make it difficult to qualify for coverage on your own, you owe it to yourself to consider your alternatives.

3. Lock-in Your Rate

When purchasing private health insurance for yourself or your family, keep in mind that your insurance company may periodically increase your monthly premiums. One way you can temporarily protect yourself is to look for a “rate guarantee” when shopping for coverage. A licensed health insurance agent can help you understand which companies offer rate guarantees. Some carriers may automatically lock in your rate for the first year of your policy. Others may offer to lock in your rate for a longer period in return for an additional fee each month.  For example, a carrier may include a rate guarantee for the first 12 months and then offer to extend the rate guarantee to a total of 24 months if you pay an extra $21 per month. Do the math to make sure you’re saving money compared to a rate increase that might make your coverage unaffordable. 

4. Deduct Your Health Insurance Premiums at Tax Time

 If you qualify as a self-employed person in your state, you may be able to deduct health insurance premiums paid for yourself and your dependents as an ‘above the line’ business expense (that is, without itemizing) on your federal tax return. Be aware, however, that you may not deduct premiums paid for any month in which you were eligible to participate in an employer-sponsored health insurance plan, and that the amount you deduct cannot be greater than your net self-employment income for the year. Talk to a tax professional to learn more about the different types of self-employment status and the tax implications of each in your state.

5. Take a Look at HSAs

An HSA is a tax-advantaged savings account used in conjunction with an HSA-eligible health insurance plan. HSAs may be a good fit for self-employed persons for several reasons. HSA-eligible plans are major medical health insurance plans that often come with a higher deductible, and lower monthly premiums, than many other plans. They allow you to deposit a portion of your pre-tax income into a savings account, earn interest tax-free and use those funds to pay for qualified medical expenses, including copayments and deductibles. Unused money accrues tax-free from year to year. For 2010, the IRS allows individuals to save $3,050 and families to save $6,150, tax free, in an FDIC-insured health savings account (HSA).

To learn more about your health insurance options and get free quotes for plans in your area, visit eHealthInsurance.com.

 

[1] Based on data from Families USA December 2009 Special Report: Expiration of COBRA Subsidy and from eHealth, Inc.’s December 2009 Report: The Cost And Benefits Of Individual And Family Health Insurance Plan. States include: AL, AZ, AR, FL, ID, IN, IA, KS, KY, MI, MN, MS, MO, NE, NM, NC, OH, OK, SC, SD, TN, UT, WI, WY.

 

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