Part 2 in our continuing series on debunking the fears of becoming self-employed…
If You’re Self-employed, Health Insurance is too Expensive.
(Note: This blog post does not apply to aspiring entrepreneurs in Canada, Britain, Australia, Western Europe, or any other advanced nation that provides universal health insurance as a basic expectation of citizenship. This is a problem only in America.)
I hear this one a lot. And it’s true – health insurance is tough. I’ve been through the experience of applying for a federal security clearance, and I can honestly say that applying for health insurance is worse.
If you want to be self-employed, you’re going to pay a lot more for health insurance than you used to.
But here’s the thing: it’s not like your employer-sponsored health insurance is FREE.
Your employer isn’t “giving” you health insurance – they’re taking it out of your salary.
Providing health insurance is not a humanitarian gesture from your employer; it’s just the result of America’s screwed up employer-based health insurance system that was cobbled together over a century of…
- Historical accidents (during World War II’s labor shortages, unions couldn’t negotiate for higher wages so they settled for insurance benefits instead)
- Defeated compromises (President Nixon was going to sign a universal health care bill in the early 70s, but the Democrats wanted to hold out for a better deal) and…
- Stupidity (one reason why the U.S. didn’t get universal health insurance in the aftermath of World War II is because white racists in the racially-segregated South didn’t want to give up their precious whites-only hospitals).
So how should we think about health insurance for the self-employed?
Look at it this way: When you pay a health insurance premium every month, you are in effect placing a bet that something bad is going to happen to you.
So how big do you want that bet to be?
For example, let’s say you have a family of four and a monthly health insurance premium of $750, with a $2500 annual deductible.
This means that every month, you are betting that your family will spend MORE than $950 on health care – and you would have to do so in order for this plan to be a good deal for you.
But most people don’t get sick that often. In fact, if you’re in good health, there’s no reason why you couldn’t go months without needing to see a doctor or get a prescription. And even if you do have some kind of ongoing health condition, the costs are often predictable and manageable – or at least, can be managed in a better way than shelling out $1,000 a month on premiums.
So if you’re self-employed, it seems to me that the best way to look at health insurance is in terms of total out of pocket costs.
This means: choose a plan with low monthly premiums, higher deductibles, and a manageable total annual out-of-pocket limit.
I’d rather pay for the “little things” along the way – doctor’s office visits, prescriptions – as long as I know there’s a limit to how much I will have to pay over the course of the year. I’d rather pay for medical care when we actually need it, rather than throw money away on high premiums every month.
The fundamental purpose of health insurance is to protect against financial catastrophe – not to pay for every little thing along the way. Lots of us who work for employers with “good health insurance” get spoiled – we get used to paying $20 for an office visit and $20 for a prescription, even though the actual cost of our health care is largely hidden (and still truly being paid by us).
If you’re self-employed, you can still have peace of mind and good medical care for your family; you just need to think differently about health insurance. Pay for the small stuff. Make sure you’re covered for the possibility of big expenses (emergency room visits, hospital stays). And even though your health care might be more inconvenient or more apparently costly than it was when you were an employee, consider it as part of the price of freedom – because freedom isn’t free.