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Health insurance for free agents & independent contractors
An new approach to workplace and career also requires a new strategy for finding and managing health coverage
by Tony Novak, updated 10/7/2011
Recent business news publications, including USA Today, report a sharp rise in the number of knowledge workers now describing themselves as freelancers, contractors, consultants, entrepreneurs or other type of free agency workers. While this trend is reported across all age groups and a wide range of industries, the trend is most pronounced among generation X workers born from 1965 to 1979. This age group showed a 111% growth in the number of free agents over the past three years according to a survey conducted by Kelly Outsourcing and Consulting Group. The economic recession is a driving factor behind the trend but other changes in corporate cost structure and strategy also fuel the growth of freelancers. Some companies, including many of the largest producers of Internet-based content1, now use freelancers exclusively for their business.
Think outside of the box
Newly self-employed workers cite obtaining health coverage concerns as one of their greatest worries, along with the ability to attract enough business to keep themselves afloat. Concerns are heightened, however, when workers try to apply the same thinking they used with former corporate health benefits to their new health insurance options.
The key to a successful health insurance strategy is understanding what health insurance should and should not do for you as a freelancer.
Health insurance for a freelancer should:
- Ensure that you are not denied entry into the health care system when you need care
- Ensure that you are paying fair discounted prices for health care services (not the higher cash prices)
- ensure that you are guaranteed acceptance into other insurance under continuity of coverage rules
- Be an easily managed expense
Health insurance should not:
- pay most of your health care expenses
- pay for (most) prescription drugs and maintenance items
- pay for previously started treatments and ongoing therapies3
- Jeopardize overall financial security or cause financial stress
Think small
The cost of insurance must be easily managed in your new operating budget. This is not the time to commit to new large expenditures. Realize that the benefits in your first health insurance plan as a freelancer are likely to be significantly different than the benefits in your next health plan. An affordable policy that provides basic benefits is better than a robust policy whose cost causes stress each month.
The fastest growing type of health policy throughout most of the U.S. is known as "mini-med" insurance. Brand names like "Core Health Insurance" and "Value Med" are popular among freelancers because they tend to cover the types of medical expenses most likely to be encountered. The risk is that they don't provide much coverage for rare but expensive medical procedures. Still, it makes sense to think of your first freelancer health plan as "starter coverage". You can always increase coverage at any time as more money becomes available.
Think short term
Health plans are changing rapidly. The 2010 federal health insurance reform law calls for changes in health plan designs each year through 2014. Additionally, commercial health insurance plans are evolving at a rapid pace to keep pace with overall trends in health care. Short term health insurance plans designed to cover six to twelve months at a time are often a smarter choice than plans that offer coverage indefinitely into the future. The benefit of trading off these long term guarantees is a savings of about half of the prevailing premium cost.
Use online resources
Health insurance exchanges are built around Internet-based engines so it makes sense that a large majority of freelancers rely on online quoting and enrollment systems for their insurance coverage. Some health plans already report more than 9 out of 10 policyholders enroll online. FreedomBenefits.net helps pull together many of the most resources for individuals on a state-by-state basis.
Plan health care separately from insurance
More than seven out of ten workers who dropped their health insurance when they lost their jobs over the last two years said they've skipped needed health care or did not fill prescriptions because of cost, according to a new report by BenefitsPro. Aside from the obvious financial stress and poor financial planning indicated, this shows how many workers view their health care and their health insurance together. While its highly likely that most could afford standard health care and prescriptions without health insurance2, most don't bother.
Health care is not health insurance. As an entrepreneur, you need to learn to manage the two separately. Resolve to make sure that your health insurance does not dictate your health care. When planning a cash flow budget, make sure to include reasonable amounts for health care separately from amounts for health insurance. For a typical freelancer, the out-of-pocket costs for routine health care will be approximately the same as the cost of health insurance. This means that the health care budget
Starting a career as a freelancer offers the opportunity to take a fresh look at your personal health care and improving both the quality and quantity of medical care4.
Footnotes
1 Freedom Benefits does not use freelancer writers but the majority of information published about health insurance by other online sources is produced by freelancers and other non-employees. The fastest growing segment of Internet content providers are located outside of the United States.
2 Median total health care expenses for an individual are less than $1000 per year so we can conclude that the majority of these individuals could meet routine health care costs with minimal changes to lifestyle and discretionary spending.
3 Each state has a separate pre-existing insurance plan designed for individuals who need this type of coverage so pre-existing condition coverage feature is not included in basic health insurance plans for freelancers. Details on pre-existing condition insurance plans are available elsewhere on FreedomBenefits.net.
4 The author has written extensively on how self-directed health insurance can be used to improve the quality of personal health care including the Consumer-driven health care blog and Universal health insurance blog.
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written and periodically updated by consumer finance writer Tony Novak. Comments, questions, feedback and updates are welcome to help keep content relevant and up-to-date. Contact the author directly by e-mail, on Twitter or through the contact information included on his Web site.
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