Here are strategies to help you reduce the cost of your health care coverage if you’re self-employed

Insurance Options For The Self-Employed

The newly self-employed face a set of unique challenges in finding and keeping health care insurance. These individuals can temporarily preserve their coverage by extending their employer-sponsored health care benefits through COBRA (The Consolidated Omnibus Budget Reconciliation Act). Up until 2/11/09 when the economic stimulus package was signed into law, COBRA allowed newly laid off workers to retain the same insurance coverage at the same price that as they already had before.

However, there is a new provision that states if you weren’t laid off between September 1, 2008 and December 31, 2009, your former employer will pay 65% of your COBRA costs so long as you don’t make more than $125,000 per year (or $250,000 for couples). However, this subsidy applies to COBRA premiums paid after February 17, 2009 – there is no provision for a “refund” of prior premium payments.

Sounds great, right? Wrong! Not only does one have to pay for COBRA out of their own pocket but that it only lasts 18 months, after which the self-employed and their families are on their own. Since most bankruptcies in the United States are caused by unexpected medical bills from people with inadequate protection, it’s important that the self-employed know what they’re health coverage options are in addition to ways of reducing what they pay for this coverage. These options are:

1. Use The Internet To Become Better Informed
Whether shopping around for the best deal on individual health insurance or wanting to ask medical questions of experts, learning to do research on the internet can make you a more informed consumer, thus bettering your chances of lowering your healthcare costs. The better educated you are about healthcare, the more you can avoid unnecessary and/or expensive medical insurance.

2. Get Coverage From Your Employed Spouse
A common and easy way to get long term health coverage is to add yourself to your employed spouse’s existing policy, and use the extra premiums you’ll have to pay as a tax-write off. “Many times it’s the best way,” says Terri Lonier, CEO of Working Solo Inc, a San Francisco strategy consulting firm for entrepreneurs. “It’s the least expensive and most streamlined (method for getting health-care coverage).” One significant advantage of such coverage is that when your spouse adds your family to his or her coverage, the additional coverage usually can not be denied or premiums raised because of any pre-existing condition.

3. Join With Other Self Employed People
There are strength in numbers so investigate joining a professional or trade organization that offers its members coverage at a group rate discount. Three such groups are the National Federation of Independent Business NFIB, the National Association for the Self-Employed NASE, and the Freelancer’s Union. However, before joining a group just for its health insurance plan, one should consider the cost of membership in addition to the insurance premiums. In addition, let the buyer beware because in some cases associations have been set up simply to market health insurance plans. These plans often use loopholes that allow them to raise prices to consumers more aggressively than they otherwise could.

4. Lower Your Level Of Health Insurance Coverage
If you are healthy and don’t require much medical care, why give the money to the insurance company for low-cost claims when you could keep it yourself? Considered choosing a plan with a higher deductible or co-pay. “A high-deductible insurance policy will keep you out of the poorhouse if something goes wrong,” suggests Peter McCann, president of Aquent Insurance Brokerage Services in Boston.

Another way to lower your health-care premiums is eliminating certain types of coverage, such as dental or vision, that you don’t need. For example, if you don’t wear glasses or contact lenses, spending an extra $200-$300 per year on vision insurance is a waste of money. Tailor your healthcare plan to your real-life health needs.

5. Reduce Your Chances of Getting Sick
You know the old saying about an ounce of prevention being worth a pound of cure? Seriously, this is especially true when it comes to reducing your of health insurance related costs. According to Marilyn Furry (Associate Professor Of Extension Education at Penn State’s College of Agricultural Sciences), the best advice to follow to avoid unnecessarily high health insurance premiums as well as out-of-pocket healthcare expenses is to do the following:

  • Take advantage of free health screenings at local clinics, hospitals or health fairs
  • Know early warning signs of potential health problems and consult a physician ASAP
  • Compare fees and costs for typical medical, pharmacy and surgical procedures

6. Take Advantage Of Tax Incentives
If your business is incorporated, your costs and your employees’ costs are entirely tax deductible. If you aren’t incorporated, you’re not out of luck – a portion of your costs are tax deductible. Keep accurate medical records so to itemize these deductions on your taxes.

7. Cut Down On Contributions.
Your employees will most likely expect you to contribute to the cost of premiums, especially since the majority of small businesses do. But if it’s absolutely impossible for you to fit contributions into your budget, at least look into insurance plans that give you a group rate.

8. Join A Discount Health Benefits Program
Perhaps the best way to cover any existing gaps in your health insurance is to join what are known as “Discount Health Benefits” clubs, with AmeriPlan being the largest of its type. These organizations offer their membership deep savings on medical, hospital and dental visits, prescription drugs, and other health services by connecting members with hospitals, clinics, doctors, dentists, vision care providers, and chiropractors that are on the plan.

Due to their ability to supplement existing health insurance, discount health benefit programs must be considered a strong health care alternative for the self-employed. However, if you already have health insurance but lack a prescription plan, consider joining a FREE discount prescription program available online.

9. Get A Part-Time Job
Assuming you could find one, a part-time job that includes health benefits can solve the problem of acquiring health insurance. This will require you to devote a minimum of 15 to 20 hours per week to your part-time job which means you’ll have less time to devote to your small-business. Although you probably became self-employed because you dislike having to work for someone else, getting a part-time job for the health benefits should not be overlooked, especially for those newly self-employed entrepreneurs who could also use the cash flow a job like this would generate.

10. Join a Risk Pool
State-sponsored risk pools are considered an insurer of last resort are aimed at helping those who can afford to buy health insurance, but who are denied affordable health insurance coverage by private companies because of a pre-existing medical condition. Thirty-four U.S. states have health insurance risk pools, although the usefulness of these state plans vary considerably; some states offer solid plans with costs slightly higher than open-market costs while others have plans that are underfunded or poorly planned and do not offer a viable alternative to most self-employed people.

For The Self-Employed With Employees

As the businesses of the self-employed grow, so will their need to hire workers. Whether they be full-time or part-time employees, eventually they’re going to have to get health care coverage as well, thus creating a new although greatly needed business expense. Managing this expense so that doesn’t get out of control will also require expertise in the area of health benefits.

Here are some ideas that self-employed entrepreneurs can used to help manage their employee health benefits in the process:

1. Incorporate Your Business
Business owners who are incorporated are eligible for tax deductible employee and employer costs like health insurance.

2. Choose Counseling Over Psychotherapy
If you or one of your employees are been seen by a mental-health therapist every week, you’re probably footing much of the bill: Most health plans limit coverage to 30 visits a year. You can cut the cost by going to a certified counselor or clinical social worker (average fee: $100 an hour) instead of a psychologist (around $140). A recent survey found no difference in effectiveness.

3. Have Copies of All Insurance Policies and Review Frequently
Start your review by looking at your insurance file. If you don’t have a file, get one today! Make sure that you have copies of all policies in your file and that they are readily accessible when needed. Make sure there are copies of claims forms for each policy in the file. You will want to create a separate off-site location for a copy of your policies and forms in case this file is destroyed. Organization is the first step in reducing insurance premiums.

4. Adjust Your Depreciation Schedules to Equipment Actually Owned
A good place to start with your premium review is an analysis of your equipment and auto schedules. Does your business still own the vehicles listed? I know of a business that insured a crane for ten years after it was sold. Maybe your line retooled and key equipment was changed which would result in premium savings.

5. Compare “Key Employees” to Other Employees That Work For You
This step involves reviewing named drivers and/or key employees identified on policies to make sure these employees are still working for you. Many employers simply fail to adjust their named insured endorsements when employees leave. But, this can result in significant savings if the loss of the employee results in lower risk.

6. Eliminate Irrelevant or Repetitive Coverage
Business changes always and so may your insurance coverage. Select parts of your coverage may no longer be necessary. For example, if a portion of your business closes, operations change, or you choose to out-source, then it may be that your business carries coverage that can be eliminated. Also, make sure your health plan accurately represent the expenses incurred by various medical providers. The average normal office visit to a Primary Care Physician is $70 yet the average visit to the ER is over $500. The Co-Pays in the plan need to reflect this cost differential so that your employees will think about where they go to get treated not only for quality but for cost.

7. Adopt, Maintain and Publicize a Workplace Safety Plan
A consistent safety plan will include the elimination of hazards that can become claims. Make it a goal of your business to enforce a safety plan and follow through. I suggest developing a tracking mechanism for the safety plan because otherwise it is impossible to gauge the effect of safety on insurance premiums. A simple method is the “safe day” method. Every shift marks a calendar tracking “safe days”, that is, days without injury to a worker or patron.

8. Classify Your Workforce Correctly
Significant savings can be achieved by making sure your workers are correctly classified by your workers’ compensation insurer and liability insurer. Your premiums are based on the type of workers used. If you are a painting company that incidentally uses ladders, then you could be incorrectly classified as a construction business and your premiums will be greatly inflated. If you have a large sales force and those sales people are being classified as line workers, then your premiums will be much higher. Classify each worker the right way and make sure your insurer does so also.

9. Discuss Your Premiums With Your Insurance Co.
Too many businesses don’t take the step of telling their insurer that they want a better rate. Frequently, insurers will discuss the premium in detail and will suggest ways to have it reduced or the insurer will learn something about the business they did not know that may result in lower premiums. It never hurts to ask.

10. Make Your Employees Healthier & Save Money
Health insurance and workers’ compensation premiums will be your highest insurance-related expenditures. Work to lower the costs through a healthy work force. Commit to setting a good example: quit smoking, become active and see your physician regularly. Adopt a no smoking policy at your company. Allow yoga or other stress reducing classes to be held on your business’s premises. Encourage proper lifting techniques. Consider a partial reimbursement of health club membership as a benefit. In other words, taking active steps to create a healthy work place lowers premium dollars.

11. Properly Train Your Employees
Train your employees and demand training as part of their employment. Most insurance underwriters will offer substantial discounts for a well trained workforce. For example, liquor liability premiums can be cut by 15% to 20% if servers are required to attend alcohol awareness training. Find out what type of workplace training will reduce your health insurance rates and the thin train, train and train some more.

12. Switch From Health Insurance To HSAs
Health Savings Accounts (HSAs) are tax-advantaged accounts you can use in conjunction with qualified high-deductible health insurance plans. HSAs allow you to deposit a portion of your pre-tax income into an account which can grow tax-free and use those funds to pay for qualified medical expenses.

13. Extend Your Plan's Waiting Period
Extend your company's health insurance waiting period and to bridge the gap, add a “Limited Medical Plan” option. Most turnover at a company happens during an employee’s first six months of employment. However, most employers provide benefits after 30 to 90 days of employment. This dichotomy creates the potential for ex-employees, who are typically in the highest risk class, to choose COBRA on a company’s health insurance program. By extending the waiting period, a company can decrease this risk and lower both its premiums and administrative burden. During the waiting period, Limited Medical Plans can be used as an inexpensive way to provide basic benefits as the premiums are only 20% of those of the major medical plan.

14. Bundle Multiple Coverage With One Insurer
Carriers offer significant discounts when a company purchases more than one line of insurance from them. By combining dental, life, and disability together or with medical, companies can realize significant savings on all of their premiums.