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        Group and Small Business Health Insurance Options Explained

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        Another AHBBO Article
        Health Insurance for the Self-Employed - Protecting Your Business's Greatest Asset

        © 2013 Elena Fawkner

        "I've been considering quitting my full-time job and getting a
        part-time job that would pay the bills [so I can start a home
        business] ... The one biggie my full-time job provides me now
        is health insurance. If I was to get a part-time job, I'd probably
        have to pay for my own health insurance and I know that can
        be expensive."

        Like Jason, who sent me the above email this week, many a
        dissatisfied employee would chuck in their full-time J.O.B.
        (just over broke) for their part-time home-based business in
        a heartbeat if not for one thing.  Employer-provided health
        benefits.  It's a biggie, no doubt about it.

        Undeniably, employer-paid or -subsidized health benefits
        are one of the few real perks of working for someone else. 
        In fact, surveys have shown that, for employees (especially
        those with families), paid benefits are hands down the most
        important element of their compensation packages.

        And there's no shortage of people already running their
        own home businesses with no health or disability coverage
        at all.  Scary.  After all, if you're dependent upon your
        home business as your sole source of income and you
        lose your health, you lose your livelihood as well.

        Bottom line?  If you run a home-based business you can't
        afford not to have health coverage of one form or another. 
        Here's how to make it happen, whatever your
        circumstances.

        BASIC OPTIONS FOR THE EMPLOYER OF ONE (YOU)

        You have three basic options when it comes to health and
        disability insurance.

        => Spouse Coverage

        If your spouse has health coverage from his or her employer,
        as a general rule, use that.  It probably provides better and
        less expensive coverage than you could get on your own.

        => Group Health Insurance

        The main advantage of group health insurance plans is that
        they can't turn you away because of health problems.  The
        good news for the solo entrepreneur is that an increasing
        number of companies are offering group health plans for
        "groups" of one.  This varies by state though so you'll need
        to do your homework to find one.

        => Individual Health Insurance

        These plans are fine if you don't have any pre-existing
        medical conditions.  (If you do, try your best to find a group
        plan that will cover a group of one.)  They're subject to
        medical underwriting so your state of health will be a factor
        the insurance company takes into account in determining
        whether to accept your application.

        Of course, the mere fact that you're able to get into a good
        plan is one thing.  Doing so affordably is quite another.

        REDUCING THE HIGH COST OF HEALTH INSURANCE

        There are several ways of minimizing the cost of health
        insurance.  Your tolerance for risk will determine which,
        if any, you are comfortable with.

        => Reduce the Level of Coverage

        Do you really need to have every doctor's visit and
        prescription covered?   If you only go to the doctor once
        a year for an annual examination, have no health
        conditions, don't need regular expensive prescription
        medications and are generally healthy, consider cutting out
        coverage for office visits and prescriptions.

        => Higher Deductible

        Similarly, if you're reasonably healthy, don't visit the doctor
        very often and don't need to use expensive medications,
        consider switching to a higher deductible to save on
        premium costs.  By increasing your deductible from $100
        to $2,000, you can cut your premium payment in half.

        => Annual Premium Payments

        If you can afford to do so, pay your premiums annually
        rather than monthly or quarterly to avoid service fees and
        to take advantage of prepayment discounts where
        available.

        => Join Associations

        Just because you're going it alone in your business
        doesn't mean you can't take advantage of the group
        buying power that being a member of an association
        offers.  Check out your local chamber of commerce,
        various trade and professional groups and small and
        home business associations for member benefits.  Many
        offer access to discounted health insurance.

        Here are a few small/home business association links
        to get you started (you'll need to cut and paste some
        of these links if they wrap to the next line):

        National Business Association

        Don't forget to check out local associations in your area
        or associations relevant to your particular profession.

        => Shop Online

        Being able to offer insurance products online means insurance
        companies save on broker and agent fees.  Often, this
        translates into premium savings for policies purchased over
        the Internet.  So, when your fingers do the walking, make
        sure they do so on a keyboard and not the Yellow Pages.

        => Medical Savings Accounts

        Under the Health Insurance Portability and Accountability
        Act (HIPAA), if you're self-employed you may be eligible to
        use a medical savings account, or MSA.

        MSAs work in conjunction with higher deductible health
        insurance policies to reduce premiums and allow you to use
        pre-tax dollars to pay for your medical expenses up to the
        limit of the deductible on your insurance policy. 

        Basically, you reduce your premium by replacing a low-
        deductible policy with high-deductible policy and use the
        premium saving to make fully tax-deductible contributions
        to your MSA.  You can contribute up to 65% of the deductible
        each year into your MSA (75% for families).  The money goes
        into a tax-deferred account or trust and you pay your medical
        expenses (until you reach the deductible) by drawing from the
        account.  Once you hit the deductible, of course, the
        insurance policy kicks in.

        If you spend less than you contributed, the surplus stays
        in the account and earns interest.  Not only that, the funds
        can be invested in high-return vehicles such as mutual funds
        and stocks. 

        As the balance can be carried forward, an MSA can be used to
        accumulate a pretty healthy nest egg for retirement.  In fact,
        a Journal of Financial Planning analysis calculated that if you
        contribute $1,500 per year into an MSA for 25 years, assuming
        a 12% rate of return, you'll end up with almost $1.5 million. 
        That's assuming you don't draw from it to pay for medical
        costs, of course.

        There are some limitations though.  First, the range of
        deductibles is limited to $1,500 - $2,250 for individuals and
        $3,000 - $4,500 for a family.  Second, as we saw above, you
        can contribute only 65% of the deductible as an individual or
        75% for a family.

        So, if you're an individual and you choose a policy with a
        $2,000 deductible, you'll be able to contribute 1,300 pre-tax
        dollars into an MSA each year.  In other words, Uncle Sam
        pays for part of your health insurance/retirement fund.  How
        fitting.

        The money in the MSA can be used to pay any medical
        expenses incurred before the deductible is reached, as well
        as other eligible costs such as contact lenses and dental
        work.  If you use the money for anything else, you must not
        only pay tax on the amount withdrawn, but a 15% penalty
        on the top.  (If you're over 65 when you make the
        withdrawal the penalty is not applied but you'll still have to
        pay the tax.)

        (By the way, MSAs are also available to you if you work for
        a business with fewer than 50 employees.)

        In short then, MSAs offer a very tax-effective and potentially
        lucrative way to self-fund part of your health care costs while
        dramatically reducing your premiums.  If luck is on your side
        and you remain healthy, by the time you reach retirement
        age, your MSA could well fund your retirement.

        Pretty neat.

        => Self-Employed Health Insurance Deduction

        Finally, the self-employed can write off 70% of their health
        insurance premiums in 2002.  This increases to 100% in 2003. 
        That's only so long as the total doesn't exceed the net profit
        from your Schedule C minus deductions for one half of the self-
        employment tax and Keogh, SEP and Simple contributions
        though. 

        Also, the deduction can only be claimed for months when
        you weren't eligible to participate in a subsidized health plan
        from another employer (including your spouse's employer).

        Self-employed workers who qualify for both the self-employed
        health deduction and the itemized medical deduction can
        write off the other 30% this year on Schedule A.  (Medical
        expenses are deductible on Schedule A only to the extent
        they exceed 7.5% of adjusted gross income.)

        WHAT TO DO IF YOU'RE UNINSURABLE

        The foregoing is all well and good if you're able to get health
        insurance in the first place.  But what if you have a pre-
        existing condition that disqualifies you from an individual
        health plan and you can't get into a group plan?  In other
        words, you can't get insurance at any price. 

        => HIPAA

        Although beyond the scope of this article, the Health
        Insurance Portability and Accountability Act (HIPAA) may
        offer you some protections.  For more information about how
        HIPAA may help you obtain health insurance even if you
        have a pre-existing condition, visit
        http://www.hhs.gov/ocr/hipaa/ .

        => Risk Pools

        High-risk health insurance plans, also known as risk pools,
        are state-funded plans and are an important safety net for
        individuals who are denied health insurance because of a
        medical condition.  They're available only in 29 states though.

        To be eligible, you must be a resident of the state from
        which you seek coverage (unless there's reciprocity
        between that state and the state you reside in) and
        you must be able to prove at least one of the following:

        1.  that you've been rejected for similar health insurance
        coverage by at least one insurer; or

        2.  you're presently insured with a higher premium; or

        3.  you're presently insured with a rider or rated policy.

        You will not be eligible for participation in a risk pool if:

        1.  you're not a resident of the state from which you seek
        coverage (again subject to reciprocity between states);
        or

        2.  you're eligible for Medicare or Medicaid; or

        3.  you've terminated previous coverage in the plan
        unless at least 132 months have since elapsed; or

        4.  you're an inmate of a public institution.

        For more information on risk pools in your state, contact
        your state health insurance department, the national
        association "Communicating for Agriculture and the Self-
        Employed" (1-800-432-3276) or visit
        Coverage via the safety-net protections of the HIPAA may
        end up being "risk-pool" coverage.

        => Healthcare Savings Programs

        Healthcare savings programs are patient advocacy programs
        that minimize out-of-pocket healthcare expenses.

        They're not insurance policies but rather programs that allow
        you to access networks of healthcare providers for the same
        negotiated rates that large insurance companies enjoy.
        Savings range from 20% to 50%.

        Not ideal but better than nothing.  Also, since they're not
        insurance policies, all pre-existing conditions are accepted.

        A modest monthly fee is usually required to participate.
        See, for example, Care Entree at http://www.careentree.com
        for $20 per month.

        Although health insurance may seem like a luxury you just
        can't afford if your finances are already stretched to breaking
        point thanks to your home-based business, you never know
        what's around the corner.  Quite simply, you and your business
        can't afford not to have health (and disability) insurance. 

        You are your business's greatest asset.  Protect it.

        _________________________

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