A Guide to Health Insurance for the Self-Employed

Share By Pamela Lewis Dolan

Being self-employed can be liberating, but when it comes to health insurance coverage, many people who work for themselves long for the days when selecting a health plan was as simple as choosing one of five plans offered by an employer.

Shopping as an individual can be an arduous process. And the Patient Protection and Affordable Care Act (known briefly as the “ACA”) raised the stakes even higher by subjecting Americans to an “individual mandate” penalty if their chosen healthcare plans do not meet the essential health benefits criteria established under the law.

Since the passing of the ACA, the state and federal insurance exchanges have become the most talked-about options for buying a healthcare plan. But, there are “a multitude of places” to shop for individual plans beyond the exchanges, said Katie Vlietstra, vice president for government relations and public affairs at the National Association for the Self Employed (NASE). By exploring all their options, self-employed individuals can find the plan that meets their needs at a price they can afford.

Insurance brokers

Before the ACA, going through a licensed insurance broker was the way many self-employed individuals shopped for insurance. Even in this post-ACA environment, brokers are still a good option.

When Allan Branch, co-founder of Less Everything, a Jacksonville, Fla.-based accounting software development firm, started shopping for a plan on his state’s exchange, he was overwhelmed by the options. Branch said he ultimately decided to visit a broker who “provided an extra set of eyes” to ensure he had adequate coverage for the medications and treatments he and his family needed.

Pros: Brokers with a ACA certification can give self-employed individuals options both on and off the exchanges. Brokers might be able to find non-exchange plans that are cheaper than those on the exchange.

Con: There may be group plans individuals are eligible for that brokers don’t have access to.

Association and trade group plans

Joining a membership organization for people in your field can be a great way to network. It can also be a great place to find affordable healthcare coverage.

Some of the nation’s trade groups and unions are able to leverage buying power by bringing members together on one group insurance plan. Similar offers might be available through alumni groups, as well.

Pro: Due to the shared risk, these plans can often cost less than an individual plan.

Cons: These plans are becoming increasingly harder to find. Many groups are discontinuing them because it’s no longer cost-effective given the ACA’s minimum coverage requirements, said NASE’s Vlietstra.

Many that still exist are indemnity insurance products — not comprehensive major medical coverage, warns Michael Bertrand, director of government and industry relations for iCan Benefit Group, a Boca Raton, Fla.-based insurance agency. Indemnity plans do not meet the minimum coverage needed to avoid the individual mandate penalty. Bertrand said those considering an indemnity plan must weigh the costs of the federal fines against the money saved by not paying a higher monthly premium.

Healthcare sharing ministries

These religious-based organizations operate under the biblical principal of “bearing one another’s burdens.” Members donate money, generally through a monthly membership fee, that goes in to a pool used to cover the medical expenses of its members.

Pros: Monthly fees are usually far less than what members would pay in premiums for traditional insurance. Ministry members are also exempt from the ACA’s individual mandate.

Cons: These cost-sharing arrangements are not insurance, said Susan Combs, president of Combs and Company, an insurance brokerage firm in New York. They do not have to pay for pre-existing conditions or provide minimum essential benefits. There’s also no guarantee that members’ medical costs will be met.

Professional Employer Organizations

Professional employer organizations are a great way for small businesses to take on employees without the administrative burdens associated with employing them, including benefit administration. The employees of businesses that join a PEO are technically, from a taxation standpoint, employed through the PEO and leased back to the small business, said Rick Ninneman, Colorado regional director for Poms and Associates Insurance Brokers. This arrangement allows employees from multiple businesses to be covered by the same group plan. Joining a PEO would qualify both the employee and the business owner for coverage.

Pros: Groups have more purchasing power than individuals to negotiate lower rates. Business owners can outsource health plan administration.

Con: Solo business owners would not qualify for PEO membership unless they took on an employee.

Businesses that have at least one employee can also take advantage of the Small Business Health Options Program (SHOP). SHOP is a component of the state-run exchanges where small business owners can shop for group policies.

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