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10 Sources of Free Agent Health Insurance
(Excerpted from Free Agent Nation: The Future of Working for Yourself. © 2002 Daniel H. Pink. For more detailed information, see the book's 30-page “Free Agent Resource Guide.” Order the book.
It's the issue that alternately grips, terrifies, and angers the citizens of Free Agent Nation: health insurance. Finding it. Affording it. Keeping it.
Because getting health insurance through an employer remains the standard method in the United States, many Americans find themselves trapped in jobs they don't want, because leaving would mean losing their health insurance. Meanwhile, people who decide to work for themselves often “go bare” and try to survive without coverage—and free agents who manage to find coverage often pay more to get less.
In general, the system doesn't easily accommodate independent workers. So do your research. Run the numbers. And read the fine print.
Meanwhile, here are ten sources to consider as you begin your search.
1. Your employed spouse. If your spouse has a regular job and that wonderful Organization Man perk called employer-provided health insurance, that's often your best option. (Unfortunately, many states and companies still don't extend family health insurance benefits to domestic partners.)
2. Your former employer. If you had employer-financed health insurance in your last job, federal law entitles you to keep that coverage for 18 additional months—if you pay for it yourself. Under the Consolidated Omnibus Budget Reconciliation Act (COBRA), you can maintain your coverage provided that you pay both the employer and employee share of the monthly premium. Getting coverage this way will cost more than when you had a real job. And it won't last beyond those 18 months. But for many free agents, COBRA has offered a helpful bridge.
3. Labor unions, guilds, and professional associations. Many of these groups are large enough to negotiate good deals with insurance companies. Figure out which unions, guilds, or associations you're eligible to join. Then see what insurance benefits they offer. Also, be sure to look at Working Today's Portable Benefits Network, an innovative insurance plan for free agents who work in New York's new media industry or who belong to certain professional associations. (For more information, visit the Working Today web site at www.workingtoday.org.) Other organizations to consider: Your local Chamber of Commerce, the National Association of the Self-Employed (www.nase.org), and the National Federation of Independent Businesses (www.nfib.org). Another possibility: If you're a college graduate, your school's alumni association might offer health insurance.
4. Group purchasing programs. In some states—such as California, Texas, and Connecticut—microbusinesses and (often soloists) can form group purchasing pools to command more power in the health insurance marketplace. Small enterprises can band together to negotiate the same sort of more affordable and comprehensive rates that large companies get. The pools vary considerably from state to state—some are government initiatives, others are nonprofits—but if you're eligible, you can usually find better rates than securing insurance on your own.
5. The open market. When bargaining for health insurance, it's better to be part of a group. But it's not mandatory. Many individuals (and families) buy health insurance on the open market much as they would purchase station wagons or strawberries. These individual policies are usually more expensive than group coverage. But for people with families, it's often worth the cost. One carrier that many free agents have used to find open market health insurance is the Blue Cross/Blue Shield plan in their state (www.bluecross.com). But shop around, because rates and coverage can vary considerably. And whatever answer you get, ask for a better deal. One more thing: Be sure to choose a carrier with a very high rating from A.M. Best (www.ambest.com), the insurance rating service. Also, under the Health Insurance Portability and Accountability Act (HIPAA), certain individuals can't be denied individual health insurance even if they have pre-existing conditions. This law is complicated and limited, so investigate fully. One good source is the federal government's HIPAA web site (www.hcfa.gov/medicaid/hipaa/)
6. Online. One way to assess the market is to visit one of the many websites that offer quotes on health insurance. On most of these services, getting a quote is free. But if you're ultimately interested a package you're offered, you'll likely have to work with an insurance agent. Among the most popular of these sites are eHealthInsurance (www.ehealthinsurance.com) and QuoteSmith (www.quotesmith.com).
7. A matchmaker or talent agency. Free agents who find work through a talent agent or matchmaker (see Chapter 10 of Free Agent Nation) can sometimes also obtain health insurance through these intermediaries. You become the “employee” of one of these entities—and receive certain employee benefits—even as you move from project to project. Another option for free agents, especially microbusinesses, is essentially to outsource your H.R. Department by enlisting a Professional Employer Organization (PEO), which provides payrolling, tax withholding, and health insurance to small enterprises. For a list of PEOs, contact the National Association of Professional Employer Organizations (www.napeo.org).
8. A high-deductible policy.If don't earn much, consider a bare-bones policy that offers catastrophic coverage with a very high deductible. That way, you're covered in the case of a calamity and your monthly premiums won't be outrageously high. This isn't ideal, of course. You'll pay out of pocket for doctor visits and routine medical expenses. But a high deductible policy is usually better than no coverage at all.
9. Medical Savings Account (MSAs).This option, created by Congress in the mid-1990s, allows free agents to combine certain high deductible policies with a medical version of an Individual Retirement Account (IRA). Each year, you can contribute pre-tax earnings to your MSA just as you would to an IRA or a 401(k). Then, when you have a medical expense (say, a doctor's visit), you use MSA funds to pay the bill. If you have money left over at the end of the year, the funds stay in your account and earn interest. For people who are healthy and don't have children, MSA's can be extremely cost-effective.
10. The federal government. Some free agents might be eligible for government-financed health insurance. If you're over 65, you're probably eligible for Medicare. (People who have certain disabilities are also eligible.) For more information, call 1-800-MEDICARE or visit www.medicare.gov. If you have a very low income or a significant disability, you might qualify for Medicaid, a joint federal-state program administered by the state. For information on Medicaid, contact your state insurance office or visit the federal Health Care Finance Administration on the web (www.hcfa.gov).
One last note: free agent health insurance premiums are almost always deductible as a business expense. How much you can deduct, though, depends on a host of factors—including how you've set up your enterprise and when you established your plan. Check with a good tax consultant to ensure that you maximize any savings.