Health Insurance for the Self Employed

Many self-employed and other individuals in this country might see a monthly premium of $500 for a family of four as a real bargain! Why is health insurance so expensive? Aside from the cost added by burdensome government regulations, the nature of the market has something to do with it, along with the type of health plan.

Most self-employed people obtain health coverage in the individual (non-group) insurance market. Both the self-employed and employees who do not have health insurance benefits must purchase their own insurance in this market, where coverage can be very expensive. People shopping for insurance in the individual market, however, may have many more choices than a person who receives health insurance as a benefit.

Two factors make individual insurance more expensive than group insurance. First, group insurance is priced according to the entire group of employees. The group more or less cross-subsidizes itself. In the individual market, each family or policy holder is basically a "group" unto itself, and there is no "volume discount."

Second, the cost of group insurance is excluded from a person's taxable income. The employer receives a full tax break for the money spent on health benefits, and dollar value of the benefit is not passed on to the employee as taxable income. This preferential tax treatment is a hidden benefit. The same treatment does not exist to this extent in the individual market. The self-employed may deduct a portion (50 percent) of what they spend for health insurance. Others have no tax benefit at all.

This tax inequity is terribly unfair. Congress has addressed it for the self-employed, but hardly any attention has been paid to others who purchase non-group insurance, and it will be several years before health insurance is fully deductible. Congress is considering a bill to increase deductibility to 100 percent immediately for the self-employed. This by itself would make insurance more affordable. The same bill would enable small business to join together to gain some "market clout" in health insurance by creating multi-state associations (MSAs) and allowing "health marts" to form for the purpose of offering health insurance at a lower cost. The bill is known as "The Patient Bill of Rights," and versions have already been passed in both the House and the Senate. Now, a House-Senate Conference Committee is meeting to reconcile the differences between the House and Senate versions. To become law, the bills must be reconciled during 2000, passed by both the House and the Senate, and signed by the president. You can express your support by sending a letter or email to the president, or by contacting your senators and representative and urging them to retain the provisions on tax fairness for the self-employed and expansion of MSAs.

Depending on your location, the individual market is full of options in coverage type, such as fee-for-service, PPO, HMO, as well as variations in deductibles, co-pays, prescription coverage, accident coverage and the like. If the price you pay for insurance seems too high, shop around for other options. For example, HMO coverage can be very expensive, as it is normally comprehensive coverage with rich benefits and low out-of-pocket exposure. HMO coverage is more of a pre-paid health plan, so you pay for medical services whether or not you use them. A PPO plan has the advantage of a simple co-payment for visits to the doctor, with a deductible for hospital care. Study your options for deductibles and other benefits, and you might find less expensive alternatives that still fulfill your health care needs. You can search for insurance options on the Internet.  Here is a link to one of the oldest and most reputable internet insurance brokers

Joining an association for self-employed people or for those in your particular field may also give you additional health insurance options. Organizations like the National Association for the Self Employed (NASE) or the National Federation of Independent Business (NFIB) have health insurance options available for members. (ED. Note -See Cautions about Association Plans HERE.

You may find that you will realize the greatest cost saving by simply changing the type of coverage that you now have. Remember, however, to maintain your current coverage until your new coverage is in force and you are satisfied with it. 

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