insurance options for the self-employed
the popularity contest of employee benefits, health care coverage
is queen. However, for the self-employed, the cost of health insurance
can be a royal pain.
estimated 40 percent of small-business owners do without insurance,
according to the Insurance Information Institute in New York, because
they falsely believe they can't afford it.
fear, o solo one.
doesn't have to be as difficult as it is made out to be," says Dana
Barfield, CLU, CHFC, a financial consultant for small businesses
and owner of The Barfield Group in Dallas.
first thing independent professionals have is a greater amount of
control," he explains. "They don't have to worry about a human resources
department dictating their benefits. They're able to analyze their
specific situation and tailor a plan to meet their specific needs.
With enough time, an individual can set up a benefits plan far superior
to any one from a company."
time. There's the rub. Other pressing matters, such as building
up your business, can make it difficult to find that time to research
appropriate and cost-effective health insurance. However, many self-employed
people don't realize what's available, says Barfield.
you gave up the grind of working for someone else, you gave up a
lot of guarantees -- and, for the most part, you're better for it.
The one sure thing you don't want to miss out on is being able to
see a doctor and deal with medical emergencies. So, here's what's
Easy health insurance options
If you're planning to leave or recently have
left full-time employment, you can take it with you -- your old
insurance, that is.
Its acronym comes from the Consolidated Omnibus
Budget Reconciliation Act of 1985, and it can provide a bridge for
the self-employed. COBRA limits you to the insurance you had before
and lasts only 18 months.
As a former employee using COBRA, you have to
pay the full premium that your employer was previously paying or
supplementing. That is still cheaper than an individual policy,
since the coverage is purchased at a group rate. When it expires,
you have the choice to continue with that same plan -- at an individual
rate. That was the choice made by Judy King, 42, a contract computer
programmer in Pompano Beach, Fla.
"I had an insurance broker looking for carriers
who work with my preferred physicians," she explains, "but I ended
up staying with my original carrier because I knew them. They're
a big company that I don't think will fold on me."
Your employed spouse:
A common and easy way to get health coverage for longer term is
to rely on your employed spouse.
"Many times it's the best way," says Terri Lonier,
CEO of Working Solo Inc., a San Francisco strategy consulting firm
for entrepreneurs. "It's the least expensive and most streamlined."
She credits the rise of self-employment to the
rise in two-income households. One spouse can guarantee a paycheck
and benefits, while the other goes independent.
Individual policies: Independent
professionals who don't have the above shortcut options need to
buy an individual policy. Luckily, the Internet has cleared these
once-murky waters and comparison shopping is easier than ever.
"The Net has done a lot to enable self-employed
people to check out competitive insurance rates," says Lonier. "One
of the smartest things you can do is shop around. You may spend
some time, but you could be saving a lot of money."
The cost of premiums varies
greatly, depending on your age, medical history and the company.
Call, ask questions, compare and then ask for a better deal.
Don Vaughan, a veteran freelance
writer in Raleigh, N.C., and his wife, Nan, a self-employed nurse
practitioner, are happy with their health insurance after investigating
"We just shopped around for
our insurance, getting quotes and literature from the major providers
and then deciding what worked best for us and was within our budget,"
he says. "We finally settled on a plan through Blue Cross/Blue Shield
that met our needs and didn't break our bank account."
When shopping around, look
for an A-plus rating by A.M.
Best, the insurance rating firm. A better rating gives you more
assurance that the company will actually pay a claim.
How to cut premiums,
Before you start your research, consider
these premium-lowering measures.
- Always protect against
If you're relatively healthy
or have a strong enough cash flow to handle routine medical expenses,
consider purchasing "catastrophic" insurance.
"A high-deductible insurance
policy will keep you out of the poorhouse if something goes wrong,"
suggests Peter McCann, president of Aquent
Insurance Brokerage Services in Boston, which delivers insurance
products to independent professionals.
When money was tight a few
years ago, just such a catastrophic policy took care of the needs
of Jerry Shaw, a rental property owner in Fort Pierce, Fla.
"I was more interested in
insurance for security purposes," he explains. "So I got health
insurance with low premiums and a high deductible. This meant I
paid for the basic stuff, but was protected in case anything serious
happened. Now I have more money to spend, so I have a better plan
-- it took care of 100 percent of a recent surgery -- with a higher
premium, but still not too bad."
A high-deductible insurance policy can also
be paired with a Medical Savings Account to take care of the routine
Choose the best insurance policy for you. A
fee-for-service plan will give you the most choice and flexibility
in your health care and a choice of doctors, but you'll pay for
it dearly. An HMO will give you a lower price, with reduced options.
You can get comprehensive coverage without too many out-of-pocket
Also, don't immediately replace all the health
insurance plans you had as a full-time employee. Consider going
without some specialty types of insurance, such as dental or vision,
if you don't need them.
For example, if you don't wear glasses or contact
lenses, spending a couple hundred a year on vision insurance is
a waste of money. Tailor your insurance plan to your health needs.
Just as when you were an employee, you can find
strength in numbers. You may be able to find an affordable policy
at a group rate discount through a trade association, professional
organization, a reputable small-business association or your local
Chamber of Commerce.
This is the way most single self-employed people
tackle the financial challenge of health insurance, says Working
Solo's Lonier. Before joining a group just for its health insurance
plan, weigh in the cost of membership with the insurance premium.
Imagine remaining independent, but putting all
that Human Resources hullabaloo into the hands of someone else.
For a fee or percentage, there are many companies willing to oblige
(as well as handle billing and other back office tasks). By joining
a talent agency, a recruitment firm or a network of free agents,
you can have the non-salary benefits of full-time employment while
continuing to develop your own business.
Before going this route, be clear what obligation
you would be under with an organization. Find out how and how much
you'll pay for the pleasure of buying into this group's benefits.
In other words, continue to be a smart consumer.
A part-time job with benefits -- if you can
find one -- can solve the problem of acquiring health insurance.
However, consider the time that it will cut into your main career
and time, warns McCann.
- Don't forget those other oft-forgotten insurances
Taking a look beyond the sniffles and a potential
broken leg -- don't forget two other important types of insurance
that many full-time employees take for granted: life and disability.
Life insurance is most important if you have someone counting on
your income. Disability insurance is of
the utmost importance when you consider that your business has one
major asset -- a healthy and working you.
Don't slack off now
Once you've chosen a plan for you, don't go back
to that old taking-for-granted mode. Check your policies and premiums
at least once a year; make sure they are still meeting your needs.
While you're at it, keep informed about changes
in the small-business benefits arena. Organizations such as Working
Today and the National
Association for the Self-Employed are building networks and
lobbying Congress to improve access to better health and retirement
plans for independent professionals.
"As more people are becoming self-employed,"
suggests Lonier, "more options are appearing."
-- Updated: August. 15, 2001