Health Insurance as a Self Employed Individual

January 19th, 2015

A fairly frequent topic I get asked about, and a hesitation of many individuals looking to become self-employed, is the issue of health insurance.  In my opinion there’s really no debate that individuals should obtain health insurance, but sometimes the steps to obtain it as well as the expected costs are unclear.  There are many reasons to have health insurance, and arguably the largest is due to the fact that medical expenses are the #1 cause of bankruptcy in the United States according to Investopedia.

When I first became self-employed back in September of 2013, I was 24 and was still covered under my parent’s health insurance.  In December of 2014, I turned 26, so January 1st, 2015 was the first day that I got the boot from my parent’s plan and had to find my own.  At my prior employer I had the ability to get my own insurance, but there was no extra cost to stay on my parents, so that’s what I did from September 2013 through December 2014.

With the recent changes in health care legislation the process for acquiring health insurance was a fairly painless process, not that it was all that difficult before the changes.  Most states will have a website setup where you can view many plan options, through many different companies, that are available to you.  Since I live in Minnesota, the site that I used is: https://www.mnsure.org/. Going directly to an insurance company that provides health insurance is also an option.

I created a profile on that site, entered some personal information, and was able to view plans shortly after my application on the site was approved.  It took less than 10 minutes to enter in the necessary information, and then took about 24 hours for my application to be approved to allow me to select a plan.

There were over 50 different plans that I was able to choose from across a variety of price points and coverage options.  Here are the main details of the plan that I chose through a major well known insurance provider:

Plan Level: Bronze Level

Monthly Premium: $118.11

Annual Deductible & Out of Pocket Maximum (in network): $6,300

Annual Deductible & Out of Pocket Maximum (out of network): $12,600

Preventative items are covered by plan at 100%

Non-preventative items are covered at 0% until the annual deductible, at which point they are covered 100% by the plan.

Includes a Health Savings Account

Some of these terms may not be familiar to everyone, so for clarity I pay $118.11 every month for health insurance.  In return for this the plan will cover all preventative items at 100% and I won’t pay for any of them.  Anything that is NOT preventative (broken bone, surgery, etc.) I will pay 100% of the cost until I reach my annual deductible.  If all of these costs are in network the most I could pay for actual health costs would be $6,300 in a year and $12,600 in a year if the charges were out of network.  Note: that the monthly premiums paid DO NOT factor into the annual deductibles.  In network basically means that an insurance company has a list of hospitals/care providers that have agreed in advance to the rates that the insurance company will pay them for care they provide to their insurance policy holders.  Out of network would be all other hospitals / care providers who do not have these types of agreements in place, and would be more likely to be a small local clinic or one off type facility.  Odds are that all of the health services I would receive will be in network, and the only real situation out of network would be used is in some type of medical emergency where only out of network care facilities are available.  Further, your insurance company will have a list of in and out of network providers so there isn’t a need to guess when picking which provider to go to.  Lastly, a health savings account, is a separate account that you can put money into pre-tax to be used specifically for health care expenses.  If any of this does not make sense, please leave a comment below and I can clarify.

After evaluating the options that were available to me, the above is the plan that I decided to go with.  Bronze level plans are the lowest level of coverage and the lowest price.  I could have gone to a higher level plan that costs more per month, and as a result there would be a lower annual out of pocket maximum and the plan may cover a percentage of care right away.  I chose this plan after a quick look at my medical expenses for the past few years (almost $0), my expected level of health costs for the next few year (hopefully close to $0), and what level of coverage will allow me to have peace of mind.  I am well aware that health expenses could come up that I can’t for see, but based on my current personal situation I believe the plan I selected is the best for me at this time.

Another note on the plan I selected, is that it covers medical only and does not include dental.  There were separate dental plans available, but after looking through them they don’t cover much beyond preventative services.  As a result I elected not to add additional dental coverage.  I still plan on going to the dentist for regular cleanings/exams, but this will be an out of pocket expense.

My personal situation, a single 26 year old with no children, and insurance needs are certainly very different from many of you reading this post.  However, this should give an idea of what types of costs incurred, coverage available, as well as the process to obtain coverage.

Health insurance isn’t the most exciting topic, but it is an important one, as health care costs can spiral out of control quickly.  In my opinion, the plan you select is really just a risk/reward analysis based on your personal situation, but I do not believe that not having health insurance is even a consideration in this analysis.

Just to be clear, I am not a doctor, lawyer, health professional, insurance adviser, or anything of that sort.  None of the above information is to be construed as official advice or recommendations on what health care plans are best for you.

I hope this posts helps shed some light on the process and options for obtaining health insurance as a self-employed individual for those of you that are interested.  If you have questions or comments, please leave them below!

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11 responses to “Health Insurance as a Self Employed Individual”

  1. Mel says:

    great post

  2. Jann says:

    Yes, The ACA has made it so much easier to be self employed. We too were able to obtain cheaper insurance than previously available to us through a private insurance company.

  3. Laura says:

    Thanks so much for talking about this. My husband is self-employed, so for the past 20 years I have worked a corporate job so we could get affordable health insurance. The Affordable Care Act has opened up the possibility of full time self-employment for me.

  4. Jim Hrbek says:

    Sounds like a good plan. I especially love the HSA part Ryan. Have you learned how to really use it effective? Almost like an additional retirement account?

    • Ryan Grant says:

      Hi Jim,

      Thank you, and I haven’t really figured out all of the details yet, but I do plan on figuring out how to use it most effectively early this year.

      Best Regards,
      Ryan

  5. Ryan S says:

    A great thing about the HSA is that it’s tax free going in and out, and after your official retirement age you can withdraw it similar to an IRA!

    I am crunching the numbers for a family of 5 on Obamacare and trying to decide whether to use it.

  6. BB says:

    Ryan, I’m not sure if this is the best choice for you. Its just my opinion, but how much more a month is the Silver Plan? Under ACA the Silver Plans come with Tax Credits paid directly from the Government to the Insurance company. For example a 60 year old woman here in NC would be charged $800 for coverage with a $1000 deductible normally when she pays out of pocket, but under ACA she will get the same coverage and only pay $100 under the Silver Plan. So the insurance company asks her for $100 payment and asks the Government for $700. Now that is a Super Broad Network coverage also. So here in NC she can go to Duke if need be to get some of the best medical care in the US.
    I’m not sure how the silver works in your situation as a self employed person. That IS how it works for people making over $12,000 a year here in NC.
    Also another note for you, A high deductible plan isn’t the smartest because say you did break your leg like you say, then you will 100% guaranteed have a bill over your deductible that you will have to pay. If you just paid say $500-1000 more a year on health insurance to get a lower premium then that is insurance (pun?) on the fact that you wont have to pay that Huge lump sum out at once.
    So overview of what I am saying is that a broad based network and the lowest deductible you can reasonably get is the smartest option. A broad network helps you choose the best doctors you can.
    And a bonus when choosing a Silver plan under the ACA is that the Government will send the insurance company 90% of your premium payments. The Silver is the only plans that do this reimbursement.
    I speak from experience because I have been thru this , it took me a whole day to learn the ACA , but I pretty much understand it and I have a Insurance Agent on call here in NC. There were literally 30 policies here in NC when ACA opened up! Just my opinion, and I thought you would like to know these things. Thanks!

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