The self-employed face significant challenges in finding and keeping health insurance. The reason for this is that at this time, pending significant changes to our health care system, there really is no specific insurance for the self-employed.
Individuals who become self-employed often preserve their health coverage by taking the step of extending their employer-sponsored health benefits through COBRA. The Consolidated Omnibus Budget Reconciliation Act of 1985 allows workers to extend those benefits for up to 18 months after leaving a job. The down side: employers no longer pay their portion of the plan’s premium, which can be anywhere from 75 to 80 percent of a plan’s cost. By keeping the coverage and paying the employer portion, you’ll see a great increase in the cost of coverage.
Aside from COBRA, one option available to you would be to buy an individually underwritten policy on the open market. If your family health history is clean, it’s simply a matter of finding a policy that offers a mix of benefits and costs that work for you. Make sure to choose a plan with adequate benefits to protect both your family and your assets. Most bankruptcies in this country are caused by unexpected medical emergencies combined with inadequate protection.
As long as you continue to pay for COBRA coverage, you can not be denied coverage for pre-existing conditions. However, if your 18-month COBRA period ends or you decide to leave COBRA to seek individual coverage through the private market, you do risk the possibility that you may be denied an insurance policy. It is interesting to note that the threat of medical underwriting or fear of policy denial often deters people from choosing self-employment.
Be sure to research your health insurance coverage options well in advance of your COBRA plan ending.
Some states offer the ability to move without prejudice to an individual market plan after your COBRA eligibility has expired, provided that you have not let your coverage lapse. Again, check with a licensed insurance professional knowledgeable in the laws of your state for advice. Your State Department of Insurance would be a good place to start.
A few states, such as New York, have what is called guaranteed-issue health insurance. In those states, companies doing business in the state must offer you the opportunity to purchase insurance coverage regardless of your health history. What that means can vary somewhat by state statute.
In some states, eligibility may be restricted to those who can show continuous coverage, meaning that you must already have a plan to be able to apply and move to the guaranteed issue plan. Check with your State Department of Insurance before dropping any coverage you already have.
Due to changes in tax law, the self-employed can deduct the cost of their health insurance premiums from their federal taxable income (this cannot exceed the amount of your actual income–in other words, you can’t use your health insurance premiums to show a loss for your business). This puts the self-employed on equal footing with big business, which has long been able to count health insurance premiums as a business expense.
Related posts:
- Individual Insurance Plans
- Health Insurance Jargon
- Tonik Health Insurance
- Medicare Supplemental Insurance
- How Health Insurance Works: What You Buy and What it Means
