Self Employed Health Insurance

If anyone ever tells you that it's easier to work for yourself, they've probably never thought through all things that an employer normally takes care of for their employees - including health insurance.  Think it's easy for the self employed to find inexpensive heath insurance?  Think again.

Finding the right health insurance for those that are self employed is more than just finding low cost health insurance.  It's all about finding the right health care coverage that fits with your lifestyle and doesn't cost a fortune.

Small Businesses and Heath Insurance

It's not surprising to learn that most small business employees and their families either do not have any health insurance at all or inadequate coverage.  The problem is even larger for those persons that are self employed individuals with no employees.

Although somewhat dated, a 1993 survey the National Center for Health Statistics conducted among self employed individuals with no employees revealed the following:

• Of the 4.5 million self employed individuals approximately 31% were uninsured, 28% purchased insurance directly, and the remainder had healthcare coverage from some other source (such as a spouse's plan).
• Nearly two-thirds of those who purchased health insurance directly from an insurance company subscribed to a fee-for-service / indemnity plan.
• Only 39% of those self employed individuals that had health insurance from another source had an indemnity plan.

Cost of Self Employed Health Insurance

The above mentioned survey also found a high correlation between the income level for the self employed person and their likelihood of purchasing health insurance.  The more you make, the greater the chance of carrying insurance.  That makes sense because the cost of self employed health insurance is significant.

Health Insurance Plans

So what can a self employed person expect to pay each month for health insurance? The answer depends on the type of health insurance plan selected.  Generally, there are two categories of health insurance, with a large number of plan types in between.

Fee for Service / Indemnity Healthcare Plans

An indemnity, comprehensive,  or fee-for-service plan does not use a health care provider network. That means the individual is free to choose any medical doctor or hospital they wish.  Coverage is usually limited to customary and reasonable charges and the patient is responsible for charges above these amounts.  Indemnity plans usually have a coinsurance provision as well as a deductible.

Health Maintenance Organization

At the other end of the health insurance spectrum is the health maintenance organization or HMO.  This type of coverage usually requires participant to choose from a list of doctors and hospitals that participate in a network.  Referrals are necessary and a nominal copayment usually applies.

There are lots of plans that fall in-between these two categories, and if you'd like more information take a look at our article on Family Health Insurance for a more detailed description and some questions / answers that might help you figure out which type of health insurance is right for your lifestyle.

Health Insurance Rate Comparisons

Rates charged for helath insurance will vary based on gender, claims experience, health status, age and other factors.  Typically, premiums will be quoted for self employed individuals and those wishing to purchase coverage for their families.  To give you an idea of what the premiums might be like for self employed workers, here is some information we've gathered from a program run by the state of Maine (as of November 2005).

Typical Monthly Health Insurance Premiums

In case you're wondering POS stands for Point of Service and this type of health insurance plan is a hybrid between an HMO and indemnity plan.  You can go out of network if you'd like - but a deductible or coinsurance payments may apply when going out of network.

As you can see from the above table, the flexibility that an indemnity plan offers to participants will result in higher monthly premiums.  You can also understand why many self employed individuals do not carry health insurance - the cost of family coverage can be as high as $25,000 per year!

Deducting Self Employed Health Insurance Costs

The good news is that if you are self-employed and paying your own health-insurance premiums, you can now deduct up to 100% of these expenses from on your federal income tax return.  The tax deduction is taken from you total income and you can claim this deduction even if you don't itemize deductions on your tax return.

That means self employed taxpayers can deduct up to 100% of the health insurance expensess that they paid for themselvesf, a spouse, and dependents.  Generally, there are two things that might exclude someone from taking this deduction:

• If you have a loss on IRA Schedule C, you can't take the health insurance deduction.  That means your company needs to be profitable.
• You're also not allowed to include copayments, coinsurance or insurance deductibles in this tax deduction.

Comparing Health Care Insurance Costs

If you're self employed and you're looking for help in choosing between health care insurance plans, we've got an online insurance calculator that allows you to evaluate each offering.  Our health care costs calculator uses your historical medical care expenses along with the monthly premiums, coinsurance, deductibles and copayments of each plan and calculates your total out of pocket costs for each policy.

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