Health Insurance for Self-employed and Small Business Owners

The Value of Health Insurance
In order to make a smart health insurance buying decision it helps to understand the value of health insurance and why you need it. It may sound obvious, but many people don’t properly understand the basic purpose of health insurance or how it works. In brief, health insurance helps protect self-employed persons and small business owners in the following ways:
Health insurance protects your finances
• It entitles you to discounted rates for medical care – Insurance companies negotiate rates with health care providers. Without coverage, the fee charged for a regular office visit can be twice as high.
• It shields you from unexpected medical costs – Even if your health plan requires you to pay certain costs out of pocket, being covered can help save you from bankruptcy in case of injury or hospitalization.
Health insurance protects your health
• It improves your access to quality care – As a member of a health insurance plan, you have access to a broad network of health care providers.
• It provides you critical care – While uninsured patients will often get emergency-room care and be billed afterwards, they may not get important treatment for a life-threatening chronic condition without an up-front payment.
• It encourages a healthier lifestyle – You may be more likely to take advantage of regular checkups and preventive care if you know it won’t cost you an arm and a leg.
Health insurance can help protect your business too
• It shields your business from personal medical costs – As a self-employedperson or small business owner, unexpected personal medical expenses can cripple your business. By limiting your personal liability for medical costs, health insurance can help keep your business afloat.
• It helps you hire and retain the best workers – Employer-sponsored group health insurance coverage is a valuable enticement in a total compensation package.

“Individual and Family Plans”
Like the name implies, these are health insurance plans purchased by individuals to cover themselves or their families. Anyone can apply for an individual and family plan. Selfemployed persons often purchase these kinds
of plans, though some may also qualify for small business/group plans. Small business owners who can’t afford group coverage may purchase individual and family plans for themselves or their families. Until federal health insurance reforms take full effect in 2014, it will still be possible (in some states) to be declined for individual or
family coverage based on a pre-existing medical condition. Self-employed persons who purchase their own health insurance may be able to deduct the cost of their monthly premiums in some cases.

“Small Business/Group Plans”
Sometimes referred to as “small business plans” or “group health insurance,” this is employersponsored health coverage. Costs are typically shared between the employer and the employee, and coverage may also be extended to
dependents. In certain states, self-employed persons without other employees may also qualify for small business/group plans. There are special tax incentives available to businesses providing
group coverage to employees, and no one in a group can be turned down due to a pre-existing medical condition.

Top Four Health Plan Types
Whether you’re looking at individual and family or small business/group health insurance, there are
several different types of health plans available. Some are designed to provide you with as many
choices as possible when it comes to doctors and hospitals. Others are designed to keep costs in
check by limiting you to a set group of “preferred” doctors and hospitals. Which type is best for you will
depend on how much convenience and protection you want, and how much you are willing to spend.
Here’s a brief review of four popular types of health insurance plan:

PPO or “Preferred Provider Organization” plans are the most popular in the individual and family market. Like the name implies, persons covered under a PPO plan need to get their medical care from doctors or hospitals on the
insurance company’s list of preferred providers in order for claims to be paid at the highest level. It’s your responsibility to make sure that the health care providers you visit participate in the PPO. Services rendered by out-of-network providers may not be covered or may be paid at a lower level.
A PPO plan may be right for you if:
• Your favorite doctor already participates in the PPO: you can sort for plans accepted by your doctor after getting quotes at
• You want some freedom to direct your own health care but don’t mind working within a list of preferred providers

HMO stands for “Health Maintenance Organization.” HMO plans offer a wide range of health care services through a network of providers that contract exclusively with the HMO, or who agree to provide services to members. Members of HMO plans will typically need to select a primary care physician (“PCP”) to provide most of their health care and refer them on to HMO specialists as needed. Health care services obtained outside of the HMO are typically not covered, though there may be exceptions in case of an emergency.
An HMO plan may be right for you if:
• You’re willing to play by the rules and coordinate your care through a primary care physician
• You value preventive care services: coverage for checkups, immunizations and similar services are often emphasized by HMOs

“HSA-eligible Plans”

These are usually PPO plans with higher deductibles, designed specially for use with Health Savings Accounts (“HSAs”). Similar to a flexible spending account (FSA) or 401(k), an HSA is a special bank account that allows participants to save money – pre-tax – to be used specifically for medical expenses in the future. Unlike FSAs, the money in an HSA rolls over every year and can also gain interest. By pairing a qualifying high-deductible health plan with an HSA, participants can save money on health care and earn a tax write-off. Find more information about HSAs online at An HSA-eligible plan may be right for you if: • You would like to pay for health care expenses with pre-tax dollars • You’re relatively young and healthy and don’t often visit the doctor • You prefer a cheaper monthly premium even if it means having a higher deductible in case of unexpected injury or illness


Indemnity plans allow members to direct their own health care and visit most any doctor or hospital they like. The insurance company then pays a set portion of the total charges. Members may be required to pay for some services up front and then apply to the insurance company for reimbursement. Because of the freedom they allow members, Indemnity plans are sometimes more expensive than other types of plans. An Indemnity plan may be right for you if: • You want the greatest level of freedom possible in choosing which doctors or hospitals to visit • You don’t mind coordinating the billing and reimbursement of your claims yourself

Self-employed Persons and Health Insurance

Self-employed persons are those in business for themselves, usually without employees. Many work out of their own homes. Some are consultants, graphic designers, Web engineers or bloggers. Others are so-called “accidental entrepreneurs” who were laid off in the recession but took the opportunity to pursue business ideas of their own. If you’re a self-employed person, this section of our guide will lead you through a fourstep process designed to help you find the coverage that best meets your needs – and to manage your coverage effectively once you’ve purchased it.


Since self-employed persons typically purchase individual and family health insurance coverage rather than small business group coverage, that’s what this portion of the guide will focus on. If you want to learn about purchasing group coverage for yourself and your employees, please skip ahead to the small business health insurance section.

Understanding Your Needs

Selecting the best health insurance plan for your needs means making an informed choice and knowing your personal priorities. Is budget most important? Which benefits do you really need? Consider the following questions. 1. ”Who will be covered under this plan?”

Why it matters: It may sound like a dumb question. You probably want to cover yourself and your dependents. But ask yourself: does anyone in your family have other coverage options? If you really can’t afford to cover everyone, who needs coverage most, and why? You may actually be able to save money by covering different members of your family separately under two or more plans.

2. ”Do you maintain a savings or do you live paycheck to paycheck?”

Why it matters: If you don’t maintain a cushion of funds in the bank, you may want a health plan with a low deductible, or none at all. If you do keep a savings and can afford a higher deductible if necessary, you may be able to find a plan with lower monthly premiums.

3. ”How often did you visit the doctor last year?”

Why it matters: If you visit the doctor regularly, it may make sense to pay a higher monthly premium in order to keep your office visit copayment and deductible low. If you rarely visit the doctor, maybe you don’t need robust coverage for preventive care.

4. ”How much did you spend on health care last year?”

Why it matters: If you spend a lot on health care, it’s important to know what you spend it on and if you expect to spend at the same pace. If these are recurring costs (for prescription drugs, for example), make sure that the plan you select covers these services. If you don’t spend much on health care, then you could save money with a plan that provides less generous coverage for office visits or prescription drugs.