Health insurance options for the self-employed

This is a guest post from Joanna Lahey, an associate professor of economics at the George H.W. Bush School of Government and Public Service at Texas A&M University and the National Bureau of Economic Research (NBER). The opinions expressed in this post do not necessarily reflect those of the aforementioned institutions. This is the third of four articles on health insurance. The final part will be published next Saturday. Here are the first and second articles in the series.

I got married relatively young, at age 22. There was a gap between my marriage which kicked me off my parents' insurance and getting put on graduate school insurance. My father-in-law gave us short-term gap private insurance as a wedding present. It was expensive from my perspective (I was looking at an annual stipend of under $20K), but for private health insurance it was cheap.

Private Health Insurance Options

Private health insurance is one method that people use to get coverage when they're self-employed or unemployed. Because the private health insurance market is broken, it can be prohibitively expensive, if available at all. Private coverage can be affordable if you are young, healthy, single (or male) and only need it temporarily. But if you don't fall into all of those categories, it can be difficult and expensive. Fortunately, under the Affordable Care Act (ACA), private insurance can no longer kick you off if you get sick after paying for private coverage. Children with pre-existing conditions cannot be denied coverage. In 2014, insurance companies will no longer be able to deny adults coverage based on pre-existing conditions. Also in 2014, states should have their Affordable Insurance Exchanges set up, allowing individuals and small businesses to better shop for health insurance plans.

GRS has talked extensively about experiences purchasing private health. How I purchased private health insurance. Finding affordable health insurance when you're on your own. How do you manage health care costs when you're on your own. Hunting for health insurance.

Because of the adverse selection problem we talked about in my first post, group coverage may be a better option for most people.

Group Coverage Options

If we were 22 and married today, we would have no need for gap coverage, because one of the provisions of the ACA is to allow adults age 26 and under, including married adults to remain on their parents' coverage. So I would have stayed on my parents' plan, and my husband would have stayed on his parents' plan. (My parents' plan could not have covered my husband, however.)

The next time I was without an employer-provided (or in my case, graduate school-provided) insurance I was doing a post-doctoral fellowship at the National Bureau of Economic Research. They offer health insurance to their staff, but not to their post-docs. So I had to explore my options for health insurance.

In 1985, Congress passed the Consolidated Omnibus Budget Reconciliation Act, or COBRA. This law allows former employees and their spouses to keep their health insurance coverage from their former employer for up to 18 months (or longer in some cases), so long as the employee or spouse pays up to 102 percent of the full cost of the insurance. That means what the employer and employee were paying added together plus 2 percent for administrative costs. The insurance actually costs the employer a bit more than the 2 percent administrative costs because of problems with adverse selection — employees who leave and take up COBRA tend to be sicker than the average employee. Additionally, there's a 60-day window before the ex-employee has to decide to accept coverage and the decision can be retrospective. That means you can go 55 days without insurance, get hit by a bus on the 56th day, sign up for COBRA in the ambulance on the way to the hospital, pay for those two months, and you still have coverage. (This kind of moral hazard problem causes COBRA to actually cost the company more than 102 percent on average.) Because it charges a flat 102 percent group rate for everyone, COBRA tends to be cheap compared with the alternatives if you're older or unhealthy, but expensive compared with alternatives if you're younger and healthy.

Another option is to work part-time someplace that offers health insurance to part-timers. In my case, Boston College offered me a one-day-a-week, grant-funded position that could include health insurance if I wanted that. Starbucks, Barnes & Noble, and UPS are well known for offering this benefit, though there may be a long wait before you actually qualify for the benefit.

not_that_kind_of_guildDepending on your business, you may be able to join a guild or union. Look into this option even if you think you don't meet the criteria of the organization's title. One of my post-doc predecessors had joined a local small-business association, despite not actually owning a business (I think the post-doc counted as contract work). For a time, my self-employed father belonged to the local Farmers Association (which had started as farmers, but included small-business owners) and was able to get health insurance from there, even though we lived in town and having a couple of apple trees and tomato plants doesn't make a person a farmer. Many unions also offer health insurance, although there may be strict limitations on who can receive benefits, and unions have been dropping health benefits.

What I ended up doing was going on my husband's insurance. That's generally the most popular option for people who are married. Next year when my husband is working on starting a consulting business instead of being employed by the university, he will be on my insurance. It'll cost a bit more than insuring us separately, but it is our cheapest option.

Government Options

If you're over the age of 65 in the U.S., you no doubt know about Medicare. Medicare has two options: a single-payer traditional plan and a network plan called Medicare Advantage. Medicare Part A covers hospitals, Medicare Part B covers out-patient visits, and Medicare Part D covers drugs. Coverage is not completely free (even after a lifetime of taxes) — in general Medicare covers about half of costs for enrollees. Some of the excluded things we've grown to expect not to be covered, like dental, vision, and so on. Additionally, Medicaid will eventually kick in for long-term-care costs once an older person has drawn down enough wealth.

Medicaid is another government provided health insurance program. For the most part, Medicaid covers two groups: the poor elderly living in nursing homes and the disabled make up two-thirds of the costs of these rolls, and the remaining one-third consists of pregnant women and their children. The State Children's Health Insurance Program, or CHIP, is related to Medicaid and specifically targets children. CHIP generally has higher income limits for eligibility than Medicaid does, and has been allowed to expand under the ACA. Medicaid and CHIP programs differ by state. Medicaid is often referred to as the “best insurance you can't buy” — it has very low out-of-pocket expenses and covers a lot of things. The drawback is that its reimbursement rates tend to be low so it can be difficult to find a physician who will take it.

If you have been denied coverage, or your potential coverage is prohibitively expensive, many states offer high-risk pools. These plans vary quite a bit by state, so contact your local state pool to find out about eligibility and other criteria. Additionally, under the ACA, there are new pre-existing condition insurance plans. You qualify for these plans if you have been denied health insurance over a pre-existing condition and you have been without health insurance for at least six months.

If you are a veteran and meet an income means test or have a service-related disability (and diabetes may qualify as a service-related disability if you served in Vietnam), then you may qualify for VA benefits. VA runs its own system of hospitals and clinics, so you get care at these specific government facilities.

Non-Insurance Options

Non-insurance options can provide limited health care. There may be a non-profit health clinic in your area — our local non-profit is called Health4All — that provides free or reduced out-patient care. Drug stores, local hospitals and HMOs, and even Walmart, may offer walk-in clinics in your area for things like vaccines and blood-pressure tests. Some even offer a nurse practitioner or general physician to check out your cough or rash or pink-eye.

Self-care may keep you out of the doctor's office, though obviously it is not much help if you get hit by a bus or have a heart attack. GRS has addressed how to save money on prescriptions, survival techniques for the barely insured, and preparing to get sick.

Finally, if you have emergency medical care needs and can't pay your bills, there's always bankruptcy. Not an option we want to consider, but health costs are a leading cause of bankruptcy for good reason.

Are there any self-employment health insurance options that I've missed? If you're self-employed, where do you get health insurance? What are the pros and cons to the type of insurance you chose?

More about...Insurance, Economics

Become A Money Boss And Join 15,000 Others

Subscribe to the GRS Insider (FREE) and we’ll give you a copy of the Money Boss Manifesto (also FREE)

Yes! Sign up and get your free gift
Become A Money Boss And Join 15,000 Others
guest
42 Comments
Oldest
Newest Most Voted
Inline Feedbacks
View all comments
Tom Murin
Tom Murin
7 years ago

I didn’t realize that a married child could remain covered under the parents’ policy. So much for the concept of emancipation.

Otherwise, I think it should be noted that Medicare is a Federal program and Medicaid is State run program (but I am fuzzy on the federal involvement as to rule making, eligibility, etc.)

Joanna Lahey
Joanna Lahey
7 years ago

The views herein are mine alone and do not necessarily reflect those of Texas A&M or NBER.

Steve
Steve
7 years ago

Nice write-up, but you seem to have glossed over the part about health-care being a service someone has to be ‘hired’ to provide. If you do not qualify for an insurance plan then you are responsible for your health-care yourself. All insurance plans do is transfer the risk (for a cost – usually monthly) from you to the insurance company. Someone still has to pay the provider when you utilize their services. A high-deductible policy with an HSA is a very cost-effective route for people who aren’t part of a ‘pool’ that the insurance companies recognize. For the insurance companies… Read more »

Joanna Lahey
Joanna Lahey
7 years ago
Reply to  Steve

You might be interested in the first and the last (next week’s) posts in this series.

Bill in NC
Bill in NC
7 years ago
Reply to  Steve

The high-deductible policies are attractive.

But you still have to medically qualify for them – e.g. exceed height/weight limits and you’re only offered the state high-risk pool (can easily be over $1000/month)

Carol
Carol
7 years ago

In NJ we have a plan offered called an “EPO.” It has limitations in annual coverage, and would probably be considered more of a catastrophic plan. It is far cheaper than the other plans(which can run over $1,000 for one person, per month.) If not for this plan, I would be uninsured, so I am grateful for this offering.

Trudy
Trudy
7 years ago

I’ve been reading these posts with the hope that I’d learn of an option to cover us affordably before I reach retirement age (a few years away), but alas, that is not the case. My husband earns a good living as an independent consultant but insurance costs are prohibitive for a small business owner. Consequently, I am employed full-time for the sole purpose of providing our health insurance coverage for a reasonable cost-share amount. We are healthy and I would love to retire (and make space for a younger worker). We have saved our entire lives and could retire now… Read more »

SLCCOM
SLCCOM
7 years ago

In Pennsylvania, we could get group health insurance through the Chamber of Commerce.

Ben Johnson
Ben Johnson
7 years ago

Just don’t get sick till 2014. After that, if you do get sick, then buy insurance – they can’t deny you for pre-existing conditions.

Might as well freeload like government is trying to get us to do. Lets enjoy the ride down!

Joanna Lahey
Joanna Lahey
7 years ago
Reply to  Ben Johnson

That type of moral hazard is precisely why Jon Gruber says the individual mandate is necessary for the ACA to work. People have to buy insurance before they get sick, not after. (And why they didn’t introduce the denial for pre-existing conditions to the law right away– these parts have to be coordinated.)

He talks about it here: http://www.americanprogress.org/wp-content/uploads/issues/2010/08/pdf/repealing_reform.pdf

Holly@ClubThrifty
7 years ago
Reply to  Ben Johnson

I’m sorry…but am I missing something here? What exactly do you think is wrong with health insurance companies having to cover people with pre-existing conditions? What do you expect them to do? Curl up in a corner and die? I don’t understand how mandating coverage for people with pre-existing conditions is the same as the government encouraging everyone to be a freeloader. And Joanna is exactly right….the mandate requiring people to buy insurance is supposed to fix the problem of people waiting to get sick to buy insurance. But let me go ahead and take a guess that you have… Read more »

Babs
Babs
7 years ago

“employees who leave and take up COBRA tend to be sicker than the average employee.”

That’s interesting. I wonder if it is really true. I assume it is based on actuarial data.

On another note. Our company is in a small group plan. Our insurance company won’t let us enroll anyone who works less than 20 hours a week even if we want to. I wonder if they also think part timers are sicker than the average employee.

Thanks for another informative piece.

Joanna Lahey
Joanna Lahey
7 years ago
Reply to  Babs

Just on average because some people leave employment for health reasons, especially those who don’t get employed after (COBRA can be a bridge to public insurance such as Medicare or Medicaid). Also anybody who takes COBRA retroactively after a negative health event is automatically more expensive than average. And healthy young folks can often get a cheaper plan in the private market, so it tends to be the more expensive people who use COBRA. Obviously not everyone who takes up COBRA is sicker than the average employee, particularly those who leave for reasons that have nothing to do with health.… Read more »

mca18974
mca18974
7 years ago
Reply to  Babs

“employees who leave and take up COBRA tend to be sicker than the average employee.” That’s interesting. I wonder if it is really true.” I’ll bet it is. I was an employee benefits clerk when COBRA first kicked in; it was really expensive then and it was even more expensive when I looked into it after leaving my job in 1997, so it’s probably even worse now. The only people willing to pay that price would be those who are, or anticipate, using the service (health care) and would be paying even more if they didn’t have COBRA. It’s still… Read more »

maggie
maggie
7 years ago
Reply to  Babs

Actually, it totally makes sense. Cobra can be really expensive, so many people who are healthy when they become unemployed choose not to get cobra. But if you loose your job and have existing health problems, you are more likely to get choose to pay for Cobra if at all possible.

Becky+P.
Becky+P.
7 years ago

You asked about other options. There is a group called Samaritan Ministries which specializes in Christians (who should supposedly have a lower risk lifestyle) or Christian Medi-share. Their insurance tends to be quite a bit cheaper than regular health insurance and I understand that at least one of these is going to be allowed under “Obamacare” regulations. But I’m like at least one commented–I’m not sure how insurance actually controls the cost of medical care! It is a bit over the top, (to me) when about 45 min. of being in the hospital costs a patient over $1500 (my son,… Read more »

Joanna Lahey
Joanna Lahey
7 years ago
Reply to  Becky+P.

I had not heard of Samaritan Ministries. I also didn’t know you could offer insurance based on religion (though I know you can offer it based on group membership). I’ll have to look into that to see how they work it. We definitely need Malpractice reform. Unfortunately, even if we could fix it perfectly, when the people who study it run the numbers, it makes only a small difference, decreasing costs less than 10% for the even the most generous estimates (more like a decrease of 2% for most estimates). Still, it would make a big difference in how care… Read more »

Tom Murin
Tom Murin
7 years ago
Reply to  Joanna Lahey

Your response doesn’t make to too much sense to me: “Having a limit of how much insurance covers is actually not insurance— it is the opposite of insurance. Real insurance has a limit of how much you have to pay out of pocket, not how much the insurance company has to pay. (My dental “insurance” isn’t really insurance— it also has caps on how much it pays.)” As you know, insurance is when risk is taken on by another party (the carrier). The transfer of the risk does not have to be complete and having limit makes sense just like… Read more »

Joanna Lahey
Joanna Lahey
7 years ago
Reply to  Tom Murin

The economic definition of insurance is not risk taken on by another party (although it generally has that aspect). The economic definition is that it is a mechanism that smooths out consumption across different states of the world (see week 1’s post). Something that fails to smooth out consumption when you are hit with a negative shock is not acting as insurance, at least not after the point at which the insurance stops paying. That’s not saying it isn’t necessarily worth buying, just that it doesn’t technically function as insurance under the economic definition. It is only insurance up to… Read more »

Becky+P.
Becky+P.
7 years ago
Reply to  Joanna Lahey

The Christian groups aren’t technically insurance, but apparently are going to be allowed. They are people who agree to share costs act as a self-insured group. As weird as it sounds, it appears to be working. I was skeptical when I first heard about it years ago but now that our own health insurance seems to be going higher and higher and higher and we don’t have a higher income, I’m considering it. I would imagine many people who are living a Christian lifestyle and want to participate, might opt for such a thing. I think it makes perfect sense… Read more »

Steve
Steve
7 years ago
Reply to  Becky+P.

The concept of the Christian group doing the ‘insurance’ together is not a ‘lifestyle’ (thinking here of no ‘fun’ activites). The thought behind it is that the Bible tells us Christians to take ‘care’ of each other. It is building what is a pool of people who are sharing the cost of healthcare amongst themselves, rather than hiring an insurance company to do the same thing. That should in theory cost each of them less than insurance does, but still gives them the choices of treatment that an insurance company may deny them. Again, the individual is still ultimately responsible… Read more »

Joanna Lahey
Joanna Lahey
7 years ago
Reply to  Becky+P.

Several other countries have exactly what you suggest– a minimal public insurance and more generous private insurance that you or your employer can buy into. (One of my colleagues is doing research on a Latin American country’s system with that set-up, and some European countries also have that system.) So not infeasible! Just difficult to get to given our current set-up. And here in the US, our Medicare system allows you to buy Medigap insurance which offers more coverage than regular Medicare. Like it said in last week’s post, the big health differences are between having no insurance and having… Read more »

Anna
Anna
7 years ago

After reading this very confusing list (but I’m sure it’s very inclusive!)of the many health care options available (or not…depending on circumstance!) in the US, I’m very happy to be living in Ontario, Canada with excellent medical coverage paid for by our taxes…and very happy that I have excellent insurance coverage for drugs/dental/paramedical services that form part of my benefits package at work.

justin@thefrugalpath
7 years ago
Reply to  Anna

I’m glad to hear from someone who actually has Canadian insurance. I whenever I talk to co-workers about the need for everyone to have health insurance they try to say that Canada’s system is so bad that people are dying ect… from waiting so long. Yet, i’m not sure that any of them have heard it from an actual Canadian. Most of it is political misinformation.

Anna
Anna
7 years ago

While I won’t disagree that sometimes we have some long wait times (neurologists are in short supply it seems), I haven’t experienced that myself. To the contrary, twelve years ago when I was diagnosed with cancer, I was taken care of very quickly – within two weeks of seeing my doctor, I was having some more advanced testing done at a hospital, two weeks after that I was having some surgery related to the cancer, within a month after that, I was at one of our best cancer hospitals. All of my treatment and follow up cost me nothing over… Read more »

Fred
Fred
7 years ago

I see that limiting malpractice liability was mentioned as a way to control healthcare costs. It seems that is always listed at the top of cost control methods. We did exactly that in Texas. Our medical costs did not drop one thin dime. What we did accomplish was make it impossible for some people to even consider suing for malpractice.

Chris
Chris
7 years ago

Thanks again for a useful article. I’m interested in the transition between what we have now and what we will have under ACA. I’m hoping to join my husband in retirement midway into 2013 and my very personal question is should I COBRA to 2014 when the ACA kicks in – or should I try to buy health insurance on the open market for that half year? I’ll be 60 and I’m healthy but who knows what could happen to my health between now and then. I know enough people who have faced health challenges at this age to be… Read more »

Joanna Lahey
Joanna Lahey
7 years ago
Reply to  Chris

Gosh, this sort of thing is the kind of thing that you should really talk over with a financial planner. (I am not a financial planner and any advice is for entertainment purposes only or whatever it takes to cover myself legally if my advice is bad!) So the question is should you do COBRA for 6 months and then get a private plan or just start out with a private plan? On the one hand, I want to say there’s no harm in shopping around, and at age 60 you may find COBRA still to be your best option… Read more »

SLCCOM
SLCCOM
7 years ago
Reply to  Chris

Your definition of “healthy” may differ from that of the insurance companies, though.

jessica
jessica
7 years ago

Joanna, I really wish GRS would make your articles a regular thing. I really enjoy them, but I think I enjoy your responses in the comments most of all. I have learned a lot these past few weeks. thank you for being willing to share your knowledge.

Joanna Lahey
Joanna Lahey
7 years ago
Reply to  jessica

Awww, thanks. Actually, I chose not to audition for doing a regular slot when JD suggested it because there’s no way I can commit to writing regular articles when the school year is fully underway. However, if you’re interested in learning more about these issues or actually becoming involved in government or non-profits, we offer a wonderful 2 year masters program in public policy or public administration (technically the degree is “public service”, but those are our tracks). We’re a best value and everybody gets in-state tuition. We also offer pretty generous scholarships for top applicants. And we give folks… Read more »

chris
chris
7 years ago

We vacationed in Canada this summer and met a Canadian couple who by almost all measures held very conservative views BUT they loved their national health care and could not understand why those from the US didn’t want something similar. They were in their early 60s and didn’t seem to have any trouble getting care.

Ramblin' Ma'am
Ramblin' Ma'am
7 years ago
Reply to  chris

This seems to be one big difference between conservatives in the US and in the rest of the world. Conservatives in Europe and Canada may be in favor of reducing other forms of government benefits, but universal healthcare has support across the political spectrum. In other countries, members of all parties seem to recognize that, no matter how careful and responsible one is, sometimes catastrophic illnesses and accidents happen. Staying healthy is not simply a matter of “personal responsibility.”

Linda
Linda
7 years ago

My husband was injured and lost his job and with it, his insurance. We tried to do the COBRA thing and looked into insuring him through my job’s insurance. Also looked into the state plans and private insurance. And the upshot is – he is currently unnsured because we cannot afford $600-700 a month to cover him. He just got a new job that offers insurance after three months. We are crossing our fingers until then.

Sean
Sean
7 years ago

There’s a glaring omission in this post: Employers with less than 20 FTEs are NOT subject to COBRA. Sometimes insurance companies will allow former employees to remain on a plan after they are no longer employed, but only for a limited time (usually three months) and only if the former employee reimburses the employer for the cost of the premium. So COBRA is not really an option for a lot of US citizens.

Joanna Lahey
Joanna Lahey
7 years ago
Reply to  Sean

That’s a very good point and should have been included.

Although these days companies with fewer than 20 employees are unlikely to offer health insurance in the first place.

Small firms are exempt from a *lot* of federal laws, so if you work at a small firm, check with a lawyer before making any drastic changes. In some cases state law will pick up where federal does not, but in many cases it will not.

Courtney
Courtney
7 years ago

I’m trying to figure out what Diablo 3 has to do with health insurance… I can’t wait to get home and play!!

Joanna Lahey
Joanna Lahey
7 years ago
Reply to  Courtney

That was supposed to have the caption, “Not this kind of a guild” and I meant to download a WoW screenshot, but must have gotten Diablo instead! Alternatively I was considering getting a screenshot from The Guild, but I wasn’t sure what the copyright restrictions are on those.

Corinne
Corinne
7 years ago

I am self employed and I pay for my own insurance. I was able to join a group plan available though my alma mater (Boston University). I’m so glad I saw the pamphlet right before graduation!

The premiums have more than doubled in the past 5 years, but I think I’m still getting a pretty good deal. $212/month $3000 deductible (I am under 30).

I don’t know if insurance discounts is something that other university’s offer, but I would encourage people to look into it.

Thad
Thad
7 years ago

Samaritan Ministries is not insurance. It is “medical sharing”, in that the members “bear one another’s burdens”. It also is exempted (along with other medical sharing organizations) as opposed to having only a waiver. The PPACA exempts the groups in the law itself. An option that “wraps around” savings benefits arounds with Samaritan Ministries is The Health Co-Op (http://www.thehealthcoop.com). All of these are very cost effective for those who meet the guidelines, especially in light of PPACA’s impact on religious organizations and their objections to some parts of PPACA that conflict with their religious beliefs (contraception, etc.).

Levi Blackman
Levi Blackman
7 years ago

As a self employed Type 1 Diabetic health insurance has always been a challenge for me. I am going on my wife’s insurance next month but this last year has been tough trying to pay for all my meds and doctor visits. I support the ACA simply because of the preexisting conditions part of the act. Living in Texas most people around here hate it but it gives me a lot of hope that the future will be better!

Adrian
Adrian
7 years ago

Joanna could you clarify the part about married children still qualifying for parent’s insurance? I checked that just a week or so ago and the website I landed on (no clue which one it was) said that they are NOT qualified after marriage. If this is true, it’s GREAT news for our family because our son plans to propose to his girlfriend over the holidays and I was concerned about having both of them lose their parent-provided coverage after marriage. It wouldn’t cause them to not get married, but it would certainly require some adjustments to their budget. Right now… Read more »

shares