A generation ago, nobody talked much about having to buy their own health insurance. Employers found it easier-and more affordable-to supply coverage to their workers. Self-employment was not as popular as it is today, so the demand for independent coverage wasn’t as great. And the information age had not matured to the point where financial and health data was so accessible to insurance providers in helping them decide the health haves and the health have-nots.
The search for health insurance today is challenging for healthy people and much more so for people with pre-existing conditions-conditions and diseases that predate the current search for coverage and may prove expensive to the insurer down the line. Whenever you search for coverage, the results are usually a rude awakening in terms of cost and availability.
People who are planning to become self-employed should definitely review their insurance situation before they step out on their own. That means they should check out independent options even if they plan to temporarily buy insurance through COBRA.
Where to Start
The ability to buy health-care coverage should start with an examination of insurance availability in your state. “Guaranteed issue” is the term given in states that guarantee that insurance for all or most health conditions can be written for every individual who wants it, no matter what their condition. That sounds good until you realize that insurers can charge what they want to meet this requirement, and that often means that independent coverage can be unaffordable in those states that have that provision. Call or check the Web site of your state insurance department to see what the conditions are for acquiring independent coverage in your state.
The Next Steps
Once you check out the state situation, these are generally the next step toward finding the best coverage.
Find two health insurance brokers who know your market. You might be able to find brokers who deal in health benefits through your company, professional organizations, or entrepreneurial message boards on the internet. You might also have luck finding local brokers through friends, colleagues, and your chamber of commerce. Let them bid out coverage based on your health and age particulars, and see what they bring back.
Reputable brokers will tell you how various insurers behave; whether they’re swift at paying claims or if they multiple-query every claim that comes in. Brokers should also know what health histories and pre-existing conditions are automatic grounds for rejecting your application.
Countersurf. Generally, you should be extra cautious when you shop for anything on the Web, and health insurance is no exception. However, you can gain some perspective by going to such sites such as healthinsurance.com (for individual coverage) and digitalinsurance.com (for group insurance). These sites will quote basic rates (your rates may differ) based on your age and location, and give you a summary of coverage, co-pays and other details. You can use these sites to better understand any broker quotes you’re given.
- Investigate requirements for your state’s high-risk pool. If you’ve been turned down for insurance, your state provides a last-resort solution, and that’s the state insurance pool. Check it out at your state’s insurance regulation site and go from there. Warning-prices will undoubtedly be steep.
- See if you can form a group. Again, this is something you need to check out with your state and then your tax adviser if you are self-employed and can prove it. Some states will allow you to buy group coverage with as few as two employees, and some states may even allow the formation of a group of one. The coverage will likely be cheaper, but there’s going to be plenty of paperwork.
- Join an association with coverage. Some chambers of commerce and professional organizations offer the opportunity to join up for group coverage. Chambers of commerce tend to be a better bet because they insure a wide variety of people and not necessarily the sickest.
If all else fails, consider going back to work for a company with a decent health plan. You might have to wait three to six months to get on the plan, but if you have a serious health condition, it might be necessary.
Considering HSAs and High-Deductible Policies
Health savings accounts (HSAs) are a way for people considering high-deductible policies-about the only way to get an affordable premium these days-to get a tax break while they save to cover the cost of that deductible.
Here’s how they work:
What are the minimum deductibles for qualified policies? For 2006, the minimum deductible for high-deductible health policies is $1,050 for individual coverage (increased from $1,000 for 2005) and $2,100 for family coverage (increased from $2,000 for 2005). Policies must also not have an out-of-pocket maximum (including deductibles and co-pays) greater than $5,250 (single) and $10,500 (family).
If I find a policy, should I automatically buy it? No. Since this is a tax issue as well as an insurance issue, it makes sense to discuss this decision with your tax or financial adviser, such as a professional. How much can I contribute to an HSA? Your maximum contribution is the lesser of your insurance plan deductible or the maximum allowed by the IRS.
What’s the difference between an HSA and a medical flexible spending account (FSA)? One important difference is that HSAs allow balances to be rolled over from year-to-year, growing on a tax-free basis as long as they’re used for medical expenses. On the other hand, medical FSAs require that the money you contribute each year be spent by year-end or you’ll lose it. But in certain cases, such as when you incur medical expenses early in a year, you can be reimbursed by your FSA without having to fully fund it-so FSAs might be a better deal. Get help from your tax or human resources professional.