Health Insurance for the Self Employed

Good health insurance is essential with today’s sky high medical costs. Discover how to get the best individual health insurance for your particular needs.

Being self employed has its own advantages and disadvantages. Health insurance for the self employed is often seen as one of those expensive costs that have to be met. Unfortunately there’s no getting around it, you do need the security of health insurance and even more so if you’re running your own company.

But don’t let the horror stories of sky high policies scare you off. There are ways and means to acquire good health coverage at a price that won’t cause you sleepless nights!

There are lots of companies and resources online that can help you with your health insurance and provide the cover you need. Before you start searching, check out some of these options that you might worth considering first:

Health Insurance for the Self Employed – Initial Steps

Joint Coverage with Spouse

If your spouse is in full time employment the best and most cost effective way to get your insurance is through your spouse’s employer. Just as long as their employer has group health insurance, it’s usually the cheapest option for ensuring you and the whole family.

The COBRA Scheme

The Federal Consolidated Omnibus Budget Reconciliation Act (COBRA) is an option for anyone about to or has recently left their full time job where their employer employees 20 or more people that has a group health plan. For the first 9 months after you leave your job, your employer is required by law to give you the option of retaining membership in their health insurance plan. As this plan is for group health, it works out much cheaper than individual insurance and your ex employer pays 65% of the plan. It will give you a buffer while you look for alternative health insurance cover as a self employed person.

Group Policies with other Self-employed and Small Business Owners

Many self employed workers and business owners band together to form a cooperative in order to negotiate more affordable health insurance premiums through group policies.

You can find more information about groups in your area through the National Association for the Self Employed (www.nase.org) or the American Association of Home-Based Businesses (www.aahbb.org).

Health Savings Account (HSA)

Another option to investigate is a health savings account (HSA), which isn’t health insurance but a savings plan that offers an alternate way for consumers to pay for their health care. HSAs enable you to pay for current health expenses and save or invest for future qualified medical and retiree health expenses on a tax-free basis.

In order to open an HSA, an individual must be covered by a high-deductible health plan (HDHP), sometimes referred to as a “catastrophic” health insurance plan. These catastrophic plans generally don’t pay for the first several thousand dollars or more of health-care expenses, but will cover health expenses after you spend that amount out-of-pocket.

This tax-advantaged goody is available to anyone under 65 whose plan has a deductible of at least $1,150 (or $2,300 for a family) as at 2009/2010. Although you can’t open an HSA over the age of 65, you can continue one if it’s already in place.

Think of an HSA as the health care equivalent of an IRA. You put pre-tax money into the HSA’s interest account, and then withdraw cash tax-free as needed to pay for medical costs. You can stash up to $3,000 in an HSA in 2009/2010, $5,950 for a family. People 55 or older can contribute an additional $1,000. Just make sure this is money you use for health bills; non-medical withdrawals before age 65 get hit with a 10 percent tax penalty, plus ordinary income taxes. Find health insurers who offer HSA-qualified plans by searching online.

Many financial planners recommend contributing the maximum each year to your HSA, if you can afford it. You needn’t worry about losing money in case your annual health expenses run less than your contributions, the way you would with an employer’s Flexible Spending Account. With an HSA, whatever’s left at the end of the year rolls over into next year’s account. So unused balances built up over time can supplement your retirement savings, since you can withdraw money after 65 for any purpose without owing the 10 percent tax penalty (though you’ll still owe income tax on non-medical costs).

No matter what, it is vital that you insure yourself and your family against the possibility of illness or accident. There are more affordable alternatives to individual health insurance plans for the self-employed.