Tuesday, March 24, 2009

Health Insurance Options for the Self-Employed

With the downturn in our economy, many people are choosing (or forced into) self-employment. But what are your options for health insurance? Frugaldad has posted the following options in response to a reader's question:

1. Continue current coverage under COBRA. According to the Department of Labor website, you, your spouse, and your son may continue health insurance coverage based on your “voluntary or involuntary termination of employment for reasons other than gross misconduct.” COBRA is expensive because you’ll have to pay both sides of the insurance premium (your employer probably used to pay the majority of the costs), and you may only be eligible for up to 18 months, so it is not a long-term solution.

2. One spouse continues to work and receive benefits. Something my wife and I have discussed is the idea that she could return to work to receive benefits if I ever branch out on my own. This might be a tough sell, particularly if there are child care issues to consider.

3. Work part time for an employer that offers benefits. They are few and far between, but there are a few employers out there that offer benefits to part-time employees. Starbucks and UPS come to mind. It might be possible to do your “side hustle” during the day, sling a few boxes at night, let mom stay at home and still get benefits. This one may be a long shot.

4. Consider membership in trade associations, unions, etc. When investigating this option for myself a few months ago someone recommended joining various freelance associations (such as the “Freelancers Union,” and various groups for writers), which offers group health care options for its members. I also noticed places like Sam’s Club offer group policies to their members through providers such as Blue Cross Blue shield, etc. You will probably pay more than you did as an employee, but less than you would for COBRA.

5. Consider a high-deductible plan along with a Health Savings Account (HSA). If you and your family are relatively healthy, you might investigate an HSA with a high-deductible, or catastrophic, health insurance plan. Basically, a catastrophic plan has low premiums because it only pays for things over several thousand dollars (think heart attacks, accidents, etc.). The health savings account is established to help pay anything and everything up to that high deductible. This option requires a good chunk of cash to fully fund the HSA up front. It’s also a risky plan, but a lot cheaper alternative to traditional health insurance, and a lot safer than having no insurance at all.

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