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.
Depending 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.
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 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?