Health Insurance Options for Contractors
Health insurance is a concern that keeps many people from living the dream of working for themselves. How can you afford to pay hundreds of dollars in monthly premiums? Will you be able to find health coverage that meets your needs? Here's some advice to help you find a solution.
Hitch a Ride on Your Spouse's Policy
This is a no-brainer. If you can obtain health coverage under your working spouse's family policy, that's usually the best way to go. Your spouse may be required to pay an additional premium, but it will probably be much less than what you'd pay for your own policy.
COBRA Insurance for the Interim
If you are single or can't hitch a ride with your spouse, how about your soon-to-be-former employer? Under a federal law known as COBRA, most employees are entitled to continued coverage under their former employer's health plan for up to 18 months after termination. The catch is you'll have to pay your own premium plus extra to cover administrative costs. But these costs, while high, will likely be lower than what you'd pay on the open market. "COBRA is almost always the best way to go," says James Walsh, president of Silver Lake Publishing, which publishes books advising consumers on insurance issues.
Walsh also suggests a related strategy: "Some employers will give an extension of benefits as part of severance." Employers might grant a six- or 12-month extension of health coverage, for example, if the employee is willing to delay his departure in order to finish a crucial project. This buys you more time, because the 18 months of COBRA benefits will kick in after the benefits extension expires.
Group Rates: Value in Numbers
Suppose you've exhausted the possibilities mentioned above. Must you go it alone, swallow hard and call HMOs or traditional insurers to get quotes on health coverage? Not necessarily. First, get in touch with professional associations or trade groups in your field, and find out if membership gives you access to group rates on insurance. However, "the benefits in such groups' plans have never been the strongest," Walsh cautions. "It's hit or miss. The wider the group, the lower the quality of benefits." Still, it's worth taking the time to get a quote.
Managed Care vs. Traditional Insurance
OK, time's up. You've got to face the music and buy your own individual coverage. Should you go HMO or shop for a traditional indemnity health-insurance policy? "I think an HMO makes the most sense for a healthy young person," Walsh says. "Until you have kids or hit middle age, managed care is fine." A related tip: HMOs have begun to target the sizable market of contractors seeking coverage. Ask managed-care companies whether they offer special rates to self-employed people like you.
If the coverage offered by accessible managed-care companies doesn't meet your needs, a high-deductible indemnity policy with a relatively low premium may be the best choice. To evaluate the overall cost of a policy, you've got to consider more than just premiums. Walsh advises looking at a worst-case scenario and determining the total cost of premiums, copayments and deductibles for the rest of your life. "People are often shocked to find out that the premium is only half or even just a third of the total cost of insurance," he says.
Whatever you do, shop around before you buy insurance. There's no other way to ensure your bottom line stays as healthy as possible.
Additional Articles in This Feature: