Health Insurance Guide For The Self-Employed

There are two basic types of plans. Traditional plans, which often have low copayments for regular visits, and High Deductible health plans. Traditional plans are what many people used before healthcare reform. They had copayments (a small amount due at the time of service) for regular Dr. visits and medications. They have a deductible and coinsurance for unusual things like MRI’s, CT Scans, and hospital visits.

These plans tend to be more expensive every month, but generally require a smaller portion to be paid by you when a claim happens.

High Deductible health plans are paired with a tax protected savings account called a Health Savings Account or HSA. These plans require that your deductible come first, unless it is a preventive service.

Basically, the federal government decided that people were not very careful with the care in a Traditional plan. For example, if it only costs $10 to get an x-ray of an arm done, most people will x-ray arms, even if the probability is low that it is broken. However, if you have to pay $250 to get an x-ray done, you will most likely wait a day or two AND are more likely to compare prices. Back in 2003 when this was first created, the idea was that people would be better consumers if they knew how much things actually cost. In an attempt slow down the ever-increasing cost of care, the government agreed to create a tax incentive to get people to be more careful with their healthcare spending, and voilà! HSA’s were born. When you enroll in this type of medical plan, it allows you to open a tax protected savings account for your medical expenses. The money either goes in pre-tax or as a tax deduction (depending on if it is in a business or an individual policy), it grows tax-free, usually earning interest once you hit a certain amount in the account, and if you take it out for a medical expense it comes out tax-free. Unlike the FSA accounts of old, the money rolls over every single year. It is your personal savings account so even if you leave your job, the money in the account is still yours. Once you reach the age of retirement, you can take the money out for non-medical related expenses and pay your current tax bracket on it.

These plans tend to work well for people that like non-traditional care like chiropractic and acupuncture as well, as you can use your savings account money on them and receive the tax benefit.

Now here is where they get a little tricky.

1) Nothing is covered until you meet the deductible except preventive care. So getting immunizations and well-child checks are free! But picking up medications might feel expensive.

2) You have to pay your monthly premium for the plan AND fund your HSA account if you want to have the money to spend. It’s like pre-funding your medical expenses, that you identified above, instead of paying after the fact. If you don’t use it, COOL! You built a medical savings account for when you do need it!

3) For many carriers, they have a lower out of pocket maximum (we’ll talk about that next).