Try telling your friends, family, or co-workers that you’re thinking of leaving your “real” job and striking out on your own. No doubt the #1 most common question will be:

BUT WHAT WILL YOU DO FOR HEALTH INSURANCE?!

1. Private Insurance

We thought we had a good answer. I can’t speak for the rest of the country (or world) but BCBS in Chicago (update: and now BCBS in Minnesota) has very reasonable private plans- no corporate employer required. You just fill out an application that’s about 473 pages long, wait several weeks for the initial approval, and all is well. Or so we thought.

I’ll let my wife give you the gory details in another post, but the short version is that they eventually reversed their decision and we were dropped from coverage. (as a side note, we recently watched Sicko and had a lot more empathy).

2. COBRA

COBRA is not a specific plan or company. Rather, COBRA is simply a government mandated option that allows you to continue the exact same coverage, with the exact same insurance company, that you had when you left your employer. Nice right? Well, there’s at least one major hitch: you get to pay the full premium. It’s at this point that you start wishing your employer’s coverage wasn’t quite so good. For us it means $1400+ a month. Ouch.

3. Your own company

We eventually set up a group insurance plan through the company I’ve had in place for the past few years. To be eligible, we needed to have at least two employees, so I officially hired myself and my wife. We each clock 30 hours a week at a “reasonable” rate, which pegs us as eligible full time employees. Despite the initial mountain of paper work involved in both hiring employees and applying for insurance, this arrangement has a few nice benefits. Our monthly premiums total about $450.

It’s all a write-off
There’s nothing stopping an employer from deciding to pay 100% of its employees insurance premiums, except for protecting its bottom line. Since I own the company, I get to decide how generous that company will be, and it so happens that this company pays 100%. The payback comes in the fact that insurance premiums are completely deductible for a business, but generally aren’t for employees.

Tailored to suit
My wife and I have separate plans (given the 2 employee minimum). That brought an unexpected bonus: it turns out it was cheaper for my wife to claim our daughter (guess they have less faith in a 30-year old male’s ability to manage health and well-being of a toddler). We put the two of them onto a slightly more expensive plan with better coverage and lower dedictables, given my wife’s innate ability to become pregnant, and our daughter’s accident-prone toddler-ness. Meanwhile, I’m on a high deductible plan which is cheaper and makes me eligible for an HSA.

Health Savings Account (HSA)
What do you get when you combine the benefits of a Flexible Spending Account with a Roth IRA? An HSA. I’ll save the details for another post, but for the right situation an HSA can be a great tool.

Whatever your situation, don’t let health insurance be the one thing stops you from making the jump and pursuing your own ideas!

[UPDATE] We’ve moved once and changed insurance twice since I posted this. Here are a few additional things to keep in mind.

  • Private is often cheaper. At the turn of the new year, we were finally approved for private health insurance. Same insurance company, essentially the same coverage, and our monthly deductible dropped by $400 a month! In addition, we can now be on one single deductible. Being separate is advantageous if one spouse doesn’t need much and the other+kids do, but if the whole family racks up bills, it’s nice to have it level off after you’ve fulfilled just one deductible.
  • Consider the timing of a switch, where possible. Switching plans mid-year wasn’t too good for us, because the deductible was reset (hence the second switch was made at year-end).
  • High-deductible plans do have some potential benefits (HSA), but generally speaking if you think you’ll hit that deductible you’re probably better off keeping it low. This past year we each had separate high-deductible plans, and met both those deductibles (thanks to a debilitating pregnancy and an out-of-state hernia repair). Ouch. Thankfully we had the HSA funded enough to cover most of it.
  • As per my disclaimer below, make sure you’re careful about writing premiums off as a business expense. As of right now, being a single-member LLC with tax status of S-Corp makes it possible and beneficial to count the premiums as an expense even though we’re on a private plan, but there are some very specific accounting guidelines and procedures.

Disclaimer: I am not an attorney, nor an accountant, nor a certified insurance rep. Please consult with all 3 of these about your own situation before making financial or legal decisions!