31/10/2020

Health Insurance When You’re Self-Employed

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When I quit my job last year to go full-time with blogging and side hustling, not only did I lose my steady paycheck, I also lost my health insurance.

The health insurance I had at my job was pretty good too. My employer paid my monthly premiums, which meant I paid nothing for my health insurance. But once I quit my job to go out on my own, I had to wade into the world of getting my own health insurance as a self-employed person – a topic that I didn’t know much about.

It’s this health insurance problem that probably stops a lot of people from making that jump into doing their own thing. Depending on your personal situation, this can be an expense that you simply cannot afford to pay for on your own.

For me, replacing my health insurance wasn’t too big of a deal. I’m young and in good health, and generally, I’m a low user of healthcare. I also don’t have a big family that relies on my health insurance. All of these factors make health insurance pretty affordable for me compared to what others might have to deal with. 

That said, in this post, I want to go over the health insurance options I thought about after I quit my job and made the move into self-employment. I’ll also run through why I went with these options and detail how much they cost.

One big caveat to keep in mind. I wrote this post based on my personal situation, which is going to be very different from your situation. Keep this in mind as you think through your health insurance options – what works for me might very well not work for you. My goal with this post is to help you think about the options you have for health insurance if you do make the move to self-employment.

Health Insurance Options After Quitting My Job 

The first thing to remember about health insurance is this – it’s a real expense that you have to factor into your decision-making process if you’re thinking about making the move into self-employment, freelancing, or entrepreneurship. How much getting health insurance will cost you depends on your specific situation – how old are you, how many people do you need to insure, what’s your overall health like? 

As for which type of health insurance coverage to choose, I basically ended up with four choices after I quit my job: 

  1. Health Insurance Marketplace. Most self-employed people will get their health insurance via a health insurance marketplace. Healthcare.gov is the federal website that you can start with. Many states also have their own health insurance marketplaces where you can view different choices of coverage. One great resource is Catch, which is a free app that can help you figure out your benefits and taxes if you’re moving into self-employment. They have an entire section in the app that can help you find health insurance for yourself.
  2. Health Share Ministry. A health share ministry is a quasi-health insurance option that generally costs less than traditional health insurance. In a health share ministry, members pool their monthly dues. The members can then use that pool of money for their health care needs. It’s important to note that health share ministries are not actually health insurance, but can work as a sort of health insurance alternative.
  3. Working Spouse’s Health Insurance. If you have a spouse with a regular job that provides health insurance, getting on their health plan will likely be your best and most affordable option. This tends to be most true for government employees, who often have really good and affordable health insurance plans.
  4. COBRA.  The Consolidated Omnibus Budget Reconciliation Act is a federal law that allows you to stay on your employer’s plan for a limited amount of time (typically 18 months). This is generally an expensive way to get health insurance since you are responsible for paying the entire premium, but it’s an option that can work for some people.

Here’s how I thought about each option after I quit my job.

Health Insurance Marketplace 

I ultimately opted to get health insurance via my state’s health insurance marketplace, although due to some mistakes (and laziness) on my part, I didn’t go with this option right away (more on that when discussing my use of the health share ministry in the next section). 

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You can sign up for health insurance during two specific periods in the year:

  • The first is during the open enrollment period, which is typically November through December of each year. If you have health insurance through your regular job, you probably know how the open enrollment period works – during the open enrollment period, you can sign up for or change your current health insurance.
  • The second is during a special enrollment period. You qualify for a special enrollment period based on certain life events, which typically include losing your health insurance coverage, getting married, having a baby, etc. The special enrollment period typically lasts 60 days from the date of the life event. 

In my case, I left my job in mid-March 2019, and my health insurance coverage ended on the last day of March. That means I had until the end of May to sign up for health insurance, which I then promptly forgot to do. I ended up signing up for health insurance during the open enrollment period in November, with my health insurance going into effect in January 2020. 

There are a lot of different types of health insurance to choose from and it can be mind-boggling trying to figure out the differences between each plan. When you search your health insurance marketplace, you’ll see that health insurance is divided into Bronze, Silver, and Gold plans. Generally, the more expensive your health insurance is, the better it’ll be. But you have to do some thinking about what sort of health insurance you really need. I’m by no means an expert on this subject, so please do your research, especially if you have specific health insurance needs that you know you need to have covered.

I’m a low user of healthcare, so I opted to go with an individual Bronze plan that costs me $205 per month. It’s a high-deductible health plan, which is the type of plan I prefer because it gives me access to a Health Savings Account. You can think of a health savings account as similar to an IRA for healthcare expenses, but the pro-move is to use it as an additional tax-advantaged retirement account (I use Lively for my HSA, which you can read more about here; Fidelity is also a good free HSA that I recommend). 

The disadvantage of going with a high-deductible health plan like this is that it has a huge deductible of $6,800, which means my health insurance might never pay anything given that I likely won’t have health insurance costs that high in any given year.

I’m okay with this however because, given my current stage in life, my goal with health insurance is really just to avoid disaster, rather than to cover every cost I have when I go to the doctor. I also have an emergency fund that is more than enough to cover the deductible, which gives me a little more confidence that I can cover any smaller costs that hit me. In my current stage of life, having the ability to pay less in premiums and gain an extra tax-advantaged account works better for me simply given how little I use my health insurance.

Health Share Ministry  

Another option that I looked at and used temporarily was a health share ministry. A health share ministry is a quasi-health insurance option where members pool their money together in order to pay for each other’s medical bills. Each member pays monthly dues, which can then be used by individual members to pay for their covered medical expenses. In a sense, it works similarly to how health insurance works, with younger, healthier people subsidizing healthcare costs for older people that are likely to have higher healthcare costs.  

Most health share ministries have a religious element to them, which may or may not work for you. Some will require you to be a member of that religion. Others are open to everyone but will require you to sign something essentially agreeing to live by the tenets of that religion. 

The really important thing to know here is that health insurance ministries are not health insurance. That means they aren’t regulated to the same extent as traditional health insurance. Because health share ministries have a religious element to them, they can also opt to not cover certain types of medical care that might otherwise be covered by traditional health insurance (you can likely guess what types of things aren’t covered, but they are generally things that go against the religion or are considered moral failings). 

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The advantage of a health share ministry is that it’s typically a lot cheaper than traditional health insurance. Because it isn’t health insurance, you can also sign up for it whenever you want since there are no specific enrollment periods.

In my situation, I ended up using a health share ministry for 6 months because I forgot to sign up for health insurance during my special enrollment period. This left me with a gap in health insurance coverage, and since I didn’t want to go without any health insurance, I decided to use a health share ministry to cover that gap – the idea being that if something really bad happened to me, I’d at least have some sort of coverage I could fall back on.  

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I used a health share ministry called Christian Care Ministry. This health share ministry charged me $120 per month in monthly dues. In addition, I had to pay a $50 application fee and a $120 new member fee.

Personally, I’m not a huge fan of health share ministries because they have some beliefs that I don’t agree with. I’m also not very comfortable with the unregulated nature of it. However, depending on your comfort level and belief systems, this could be an option that you can use. 

I only attempted to use the health share ministry one time during the 6 months that I was a member. I submitted a bill for my yearly flu shot and a tetanus booster shot. The health share ministry covered a tiny portion of this bill and I had to pay the rest myself. 

Spouse’s Health Insurance  

Another option that was available to me was to go onto my spouse’s health insurance plan. If you’re someone that has a working spouse that gets health insurance through their employer, then this is likely going to be your best and most affordable option. 

My situation is a little unique though. My wife owns her own practice and gets her health insurance through the group health plan that she has for her practice. As the practice owner, she still pays the entire cost of her health insurance, as her “employer” contribution to her health insurance premiums comes from her profits. Thus, adding me to her plan was still more expensive than me getting my own plan. 

I’ll likely need to reevaluate this option in the next open enrollment period, however, as the cost isn’t as expensive as I thought it was. It might make sense for me to switch over to that plan, pay a little bit more, and have a little more insurance coverage.

At the same time, I really don’t use very much health insurance, so having the high-deductible health plan gives me the advantage of lowering my premiums and giving me access to an HSA. If we change my wife’s coverage over to a high-deductible health plan, then it might make sense to go over to her plan. The issue is that we have a baby, so having a low-deductible plan with good coverage is advantageous right now. 

Initially, I was under the impression that going on my own health insurance plan would allow me to deduct my health insurance costs, but I think I might have been wrong on that front, as the rule might require me to have no access to any group plan, including a spouse’s plan.

COBRA

COBRA is a federal law that allows you to remain on your employer’s health insurance for a limited period of time – typically up to 18 months. For most people, COBRA coverage is unlikely to be anything more than a short-term solution because of how expensive this type of coverage can be. With COBRA coverage, you’re responsible for paying the entire health insurance premium, which is often a significant expense that most people can’t afford.

One useful thing with COBRA that everyone should take advantage of is the 60-day retroactive period. When you leave your job, you get 60 days to enroll in COBRA coverage. Those 60 days are retroactive, which means that if you enroll in COBRA at any time during those 60 days, it’s as if you had coverage from day 1.

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In practical terms, this 60-day retroactive period puts you in a no-risk situation where you don’t have to pay for health insurance, but you will have health insurance if anything were to happen to you during that time. If something does happen during those 60 days that necessitate health insurance coverage, you simply enroll in COBRA and pay the premiums you owe. You’ll then receive retroactive coverage all the way back to the beginning of those 60 days. So, if you were to get injured on day 59, you simply pay the premiums that you owe, and the coverage resets as if you had coverage from day 1.

I’ve taken advantage of this 60-day retroactive period twice during my working career. The first time was when I switched jobs a few years ago and had a stretch of time where my health insurance didn’t kick in at my new job. When I made the move to self-employment, I took advantage of that 60-day retroactive period again and didn’t pay for any health insurance during that time. 

Final Thoughts 

As you can see, I’ve got a lot of options when it comes to health insurance. That’s a product of my fortunate situation where I’m young, in good health, and I have a working spouse with her own health insurance plan. 

This year, I’ve been paying $205.23 per month for my individual high-deductible health plan that I got through my state’s health insurance marketplace. Due to COVID, my health insurance gave me a 20% discount for July and August, so for those two months, I paid $164.18. That means for this year, I’ll pay a total of $2,380.66 for my health insurance coverage. 

That doesn’t seem too bad for me. Of course, my plan has a high deductible, so other than basic preventive care, it’s unlikely that my health insurance would ever kick in. I also contribute the maximum of $3,550 to my HSA for 2020. I treat that as an additional retirement account, but you could think of it as part of my yearly health insurance costs if you wanted to. 

The most important thing for me is to have some sort of coverage. I wouldn’t risk going without any health insurance and I don’t think you should either. You need some sort of health coverage in case of a disaster. I hope this post gives you some ideas about what you can do.



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