December 21, 2007
People choose self employment for a variety of reasons: To escape corporate bureaucracy, flex their entrepreneurial spirit or simply put food on the table after being laid off. Nearly 11 million Americans work for themselves, which means they and their families quite possibly are living without the safety net of employer-provided benefits and insurance.
Whether you're self-employed by choice or necessity, or simply considering taking the plunge, don't forget that along with greater freedom, you'll also face additional responsibilities that could put your financial security at risk. For example, health insurance can be shockingly expensive - although the premiums are fully deductible, helping offset your taxable income.
Before simply deciding to forego coverage, be aware that over half of personal bankruptcies stem from health-related expenses, even for those with insurance. One serious accident or unexpected illness could potentially wipe out your savings and plunge you into debt.
Here are a few medical insurance options to consider:
Investigate coverage through your significant other's plan and compare the terms and cost with private insurance.
Some trade and professional organizations offer group coverage to members. However, avoid groups formed strictly to sell insurance because rates could climb disproportionately when healthier members drop out.
If you're currently covered through your employer but are considering self employment, ask whether you're eligible for COBRA continuation coverage. Typically, COBRA provides benefits for 18 months (sometimes longer) and costs 102 percent of the full premium - probably considerably more than you're used to paying.
Although healthy people can usually find private insurance, be aware that even minor pre-existing conditions may exclude you from eligibility. A good insurance broker can help you find appropriate coverage. Ask friends for recommendations or go to the National Association of Health Underwriters (www.nahu.org).
To lower premiums, consider purchasing a high-deductible plan. Their monthly premiums are often hundreds of dollars cheaper than comparable low-deductible plans but they do provide comprehensive coverage for catastrophic illnesses that could otherwise deplete your savings.
Some people combine a high-deductible plan with a Health Savings Account (HSA) for additional savings. With an HSA you put aside pretax dollars in an interest-earning account, and then withdraw the money, tax-free, to pay for health care expenses. HSA contributions are tax-deductible, even if you don't itemize deductions.
Unlike employer-sponsored Flexible Spending Accounts, which they resemble in many respects, with an HSA you can carry your unspent balance forward, year after year. Just be sure to ask if your plan is IRS-qualified to work with an HAS before opening an account. To learn more about HSAs, go to the U.S. Treasury Department's Website, www.treasury.gov/resource-center/faqs/Taxes/Pages/Health-Savings-Accounts.aspx, or www.hsasearch.com.
Many states provide government-subsidized high-risk insurance for people who can't buy private insurance because of pre-existing conditions. It's costly, but no one can be turned away. For information on different states' plans, go to www.naschip.org.
And finally, you may be able to purchase HIPAA (Health Insurance Portability and Accountability Act) insurance if your group plan has been cancelled or your COBRA has expired and you don't qualify for private insurance. Eligibility rules are very complicated so speak to a knowledgeable insurance broker. Other good information resources include the Georgetown University Health Policy Institute, which provides state-by-state consumer guides for getting and keeping health insurance (www.healthinsuranceinfo.net), and the Kaiser Family Foundation (www.statehealthfacts.org/index.jsp).
Working for yourself can be extremely satisfying - just be sure to take care of your health while taking care of business.
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