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Self-Employed Health Insurance
Self Employed Health Insurance has always been a problem. Each and every time we speak to someone who is contemplating opening their own business or who has been on there own for years the same subject always comes up - self employed health insurance. Let's take a look at what we are up against. You are only one self employed business person and you are not afforded any of the 'breaks' the big companies receive. You are taken advantage of by unscrupulous insurance agents. In many cases, the real tragedy occurs when you use your insurance due to a catastrophic event and you find it lacking. Health insurance, having enough and being able to afford it, is one of the most nagging concerns for those who leave corporate America to run their own business.
Many small businesses have dropped health coverage or reduced it in the past three years because of rising rates. About 24 million of American small-business employees and their families are uninsured, according to a study by the Kaiser Family Foundation.
The Consolidated Omnibus Budget Reconciliation Act (COBRA) is a federal law that requires employers to allow departing workers to buy health insurance through the employer's group plan. For the first 18 months after you leave your employer you may elect to continue to receive coverage in your employer's group plan at your expense.
However, the cost of the monthly premiums for COBRA can come as quite a surprise if you're accustomed to you employer picking up most of your health insurance tab via pretax paycheck deductions. COBRA coverage for a family can run $500 a month, and upwards of $200 a month for an individual.
Depending on which State you live in COBRA may not necessarily be the best deal for you. Shop around, you may find joining a short term insurance plan to be less expensive than continuing your current insurance under COBRA.
One piece of good news for the self-employed - health insurance is a deductable expense on your tax return. As a result, if you work as a consultant, freelance worker, and other self-employed individual you will be allowed to deduct all of your health insurance premiums. The self-employed health insurance deduction is especially valuable because it is an above the line deduction for Adjusted Gross Income (AGI). This means that you can take advantage of this deduction even if you do not you itemize your deductions on your tax return.
Even with health insurance the portion of medical expenses that has to come out of your pocket can be more than you imagine. If you have to dip into your retirement savings for certain medical expenses, distributions from your IRA used for that purpose may be exempt from the IRS 10 percent early withdrawal penalty.
However, you still will have to pay taxes on the IRA distribution. Another alternative is to transfer your IRA to a Self-Employed 401(k) plan and take a loan from that plan. Loans from a 401(k) plan are tax-free and penalty free as long as the loans are paid back. On a personal note.... A friend of ours in Kansas City was forced to go to the Emergency Room recently (12/2007) with severe stomach pains. Unfortunately, he had no health insurance. He was diagnosed with severe pancreatitis and spent two days in Intensive Care and an additional 5 days in the hospital. One week after being released, he had day surgery to remove his gall bladder. He called us to ask for our help because the experience was overwhelming to him. The initial 7 day stay in the hospital cost $27,563.00 and he had to sign papers to the effect that he understood this would be billed at the full amount and not discounted. This is common practice when you do not have health insurance. The gall bladder surgery was classified as elective surgery - unlike his first admission to the hospital through the emergency room which was deemed life threatening and necessary. The surgeon and hospital required payment in advance for this procedure. That bill was $13,365.00. So his total bill is going to exceed $41,000. Of course, at this point, health insurance will not help him with his current medical bills. And because he has a looming medical issue no one will be willing to give him adequate coverage if any coverage at all. There was nothing we could do to help him at this point.
So, is there a solution?? Our best advice is to do your homework. Here is a checklist: 1. Check with your State Department of Insurance and make sure the Insurance Company you are considering is licensed in your state. 2. Check the Complaint Index that most State Insurance Departments compile. 3. Ask friends and family what self employed insurance coverage they have and are they satisfied with it. A word of caution here though, also ask them how long they have had it and if they have used it. If the insurance policy has been in effect for over a year, ask them if they have had any price increases. If they have used the insurance, ask them if the claim was paid properly.
4. Contact a health insurance broker. They have access to multiple health insurance carriers and will shop around for you to find the best plan. AVOID BUYING HEALTH INSURANCE OVER THE INTERNET THAT DOESN'T OFFER YOU A PERSONAL AGENT. 5. READ YOUR POLICY!! Read the Policy and Outline of Coverage word for word and ask questions if it does not make sense. Your agent should be ethical and knowledgeable and lead you in to the right answers.
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