Self-employed people, unlike salaried employees, are responsible for obtaining health insurance, since employer’s group health insurance is not available to them.
Many a time, people are dissatisfied with their job, but continue working for their employer because of the fear of losing the employer’s health insurance. In the US, more than 60% of the work force obtains medical insurance by enrolling in their employer’s group health insurance plan. Group health insurance results in reducing the per head premium because of collective bargaining power.
On the other hand, individual health insurance plans result in a higher premium and sometimes even denial of coverage to people with pre-existing conditions. No wonder people think twice before changing employers. In fact, most people prefer working as salaried employees, and give up their dream of entrepreneurship because of unaffordable health care.
Temporary Health Insurance Coverage
COBRA
COBRA (The Consolidated Omnibus Budget Reconciliation Act) allows a person to continue on the former employer’s group health insurance plan for a period of 18 months after layoff. The former employee is expected to pay 35% of the insurance premium, while the remaining 65% is covered by the Federal government. Prior to March 1, 2009, the employee had to pay the entire premium for the policy. Even then, the policy was preferred to individual health insurance plans because of the lower premium. A person trying to set up his own business can avail health insurance at a reasonable cost for a period of 18 months.
Temporary Health Insurance
This is a good option for people on their way to self-employment. Temporary health insurance is an indemnity insurance. Hence, unlike managed care plans that tend to be restrictive, temporary health insurance plans provide the insured person the benefits of traditional health coverage. The procedural formalities are limited and one can get immediate coverage. However, as the name suggests, this insurance is of a temporary nature and a person is covered for a maximum period of 6 months. Moreover, temporary insurance does not allow preventive and routine care. Dental and optical care are not included in this policy. This policy is only meant for illness or injury.
Permanent Health Insurance Protection
Spouse’s Health Insurance Policy
In case the spouse is working, he/she may be covered under the employer’s group health insurance plan. It is possible to extend this plan to cover the family by paying additional premium. The main advantage of using the spouse’s health insurance plan is the low probability of being denied coverage on account of pre-existing conditions. Moreover, the premium cannot be increased based on claims history.
Joining a Group
Joining a group may help in obtaining affordable health insurance. The reason is simple. Distribution of risk results in reduced per head risk and this, in turn, reduces the premium on the policy. Moreover, a person can get coverage for a pre-existing condition in case of group health insurance.
State Risk Pool
Each state has a risk pool which is run like a non-profit organization. These state pools were created to provide insurance to people ineligible for private insurance due to pre-existing conditions. It was also meant for people who could only access health insurance at exorbitant premiums due to the complexity of their medical conditions. There is no waiting period for people who have been continuously covered under any group insurance.
A break in coverage for a maximum period of 63 days is allowed. A longer break will result in a waiting period for obtaining coverage. The premium for risk pool insurance is higher than that the premium for regular individual insurance. However, there are caps on the premium to ensure affordable coverage.
The premium paid on the insurance policy by self-employed people is tax deductible. This is a huge advantage of self-employment. A person should plan well in advance and make the necessary arrangements for health insurance before he decides to pursue his dream of entrepreneurship.
