Budget for self-employed health insurance

KM | August 7, 2008

Q: I am looking for health and dental insurance for me personally. I am currently with Blue Cross / Blue Shield but I am looking for low cost medical insurance when I become self-employed. Preferably less than $100 per month. Would this require a miracle?

A: One hundred dollars per month is not enough for an average adult to budget for comprehensive health care. A self-employed person should budget significantly more than this for total health care expenses - whether insured or out-of-pocket. Self-employed people typically self-insure to a greater extent than your BC/BS plan, but the overall expenses remain about the same. For example, the current BC/BS insurance might cost $300 per month and leave only $2,000 total out-of-pocket expenses over the course of a typical year. A self-employed health insurance plan at MedSave.com might cost $100, but leave the first $5,000 uncovered as out-of-pocket expenses.  This is a good deal only IF you do not incur significant medical expenses early in your new business career. Of course, the actual health care costs ultimately depend on location, age, genetic and behavioral risk factors and your prior health history.

For planning purposes, it pays to be conservative and think in terms of "worse case scenario". If you don't think your business could handle an overall $400 per month (a conservative national median insurance plus out-of-pocket medical expenses) then this should enter into your business planning. Concern over covering health care expenses is usually cited as the #1 reason given for holding back people who would otherwise wish to leave an employer to start their own business. Small businesses typically do not budget as much for employee health care as larger employers.

Although several popular health insurance policies are available at MedSave.com to self-employed people for less than $100/month, they each leave significant holes in overall coverage. Low cost health insurance policies either have a higher "up-front" deductible, or lower coverage limits in the event of a catastrophic claim. You will likely want to aim for some higher level of protection that allows you to completely cover the catastrophic risks and keeps expected out-of-pocket costs to a level you can comfortably afford. Health Savings Account plans are ideal for this purpose. Some young health adults and self-employed people can get by with total health care costs - insurance plus out-of-pocket costs - at less than $100 per month for extended periods of time, but even the simplest medical issue or procedure will destroy that budget. This leads to many new business owners avoiding medical care for conditions that they formerly would have sought treatment during those early years of their business start-up. Then either one of two things happens: 1) the business is successful enough to cover the long term cost of health care, or 2) the business owner needs to find another way to cover health expenses, including a spouse's plan, a new employer's plan or government-assisted health plan.

If you are looking for an "average cost" figure to keep in mind as you begin the planning, it may make more sense to assume that comprehensive major medical insurance with a high deductible will cost $200+/- per month and that out of-pocket costs will average about $2,000 per year. As you refine the search, the estimates will become more clear.



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