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Insurance and the Self Employed

When starting your own business, it’s typically a big leap of faith and can often have a big effect on your pocketbook. When leaving a full-time employer to start your own business, many times you are also walking away from the certainty of your health insurance coverage.

When you’re self-employed, you don’t have an HR department to select your insurance plan. As the owner/founder, it’s really up to you to choose your health insurance and make certain that you and your family, if you have one, are adequately covered.

While we all hope to stay healthy, chances are that you will face sickness, injury, or need a form of medical care at some point. It is very important to have health insurance for expensive worst-case scenarios and annual care like a physical and flu shot.

The first step in getting covered is picking your health insurance plan, which you may not have ever needed to do for yourself. Before diving into plans and pricing, take some time to figure out your needs. Whether it’s just you or you and a family, list out your specific healthcare needs and what’s important to you in a plan.

Keeping your same doctors: Some people want to stick with favorite doctors while others are fine switching to doctors assigned by their insurer.

Where you can get care: PPO plans generally let you pick your doctors and hospitals, though network rules usually apply. In contrast, HMO plans restrict you to doctors employed by the insurance company.

What type of care is covered: Some plans are bare-bones with high deductibles and only help after a major expense. Others are more comprehensive and cover more medical needs.

How much you can afford in monthly premiums: Premiums are the monthly cost you pay to stay insured. Higher premiums generally lead to better coverage and lower deductibles.

How much you can afford in a medical emergency: Many insurance plans have a deductible that you have to pay before coverage begins. Take note of your savings and what you can afford if picking a plan with a high deductible.

Employees at large companies typically have just a few health insurance choices picked by their employer’s HR department, and employers usually pay for a big chunk of the cost. When you’re self-employed, you have to decide everything and pay for everything, for better or worse.

Where you can get care: PPO plans generally let you pick your doctors and hospitals, though network rules usually apply. In contrast, HMO plans restrict you to doctors employed by the insurance company.

There are several types of health insurance you may come across from major insurance companies and in the healthcare marketplace. It’s important to choose the right kind of insurance for the way you want to receive care.

A Preferred Provider Organization (PPO) is a type of insurance where you can go to any doctor or hospital you choose, but you’ll pay less if you select a provider in your insurer’s network. Examples include UnitedHealthcare and Blue Cross Blue Shield. This is the type of insurance I picked because I want the option to go to the best doctors in my area, even if it costs a little more than an HMO.

Health Maintenance Organizations (HMOs) are health insurance plans where your insurance company is your healthcare provider. You can only go to doctors and hospitals in the network outside of an emergency. An example of an HMO is Kaiser Permanente.

A less common type of insurance is an Exclusive Provider Organization (EPO). An EPO works like a combination of a PPO and an HMO. You go to independent doctors and hospitals, but only from a list of in-network providers outside of emergencies. Point of Service (POS) plans offer a network of providers and require a referral from your primary care doctor to see a specialist.

After signing up, you will have to pay your insurance bill to begin coverage. This is where it’s important to put on your business-owner hat to make sure things are handled correctly.

If you’re an S Corp, your health insurance should be paid for by the business using a business account. You could use a business credit card or checking account.

When you pay from a business account, your health insurance cost is recorded in your accounting records as an employee benefit expense, which lowers your business’s taxable income. With lower taxable income, you pay less in taxes. Depending on your health insurance cost, those tax savings could be significant.

When you’re a sole proprietor or LLC, you’ll pay for your health insurance through your personal account rather than your business account. Then, you’ll write off your qualifying health insurance premiums on your taxes.

Take note, you can only write off your health insurance premiums if you and your spouse don’t qualify for employer-subsidized health care. Also, the amount you deduct can’t be more than your net profits.

Make sure to discuss your goals with me, so I can help you choose the right plan that works best for you.

For a Free Quote, contact Bethany Montgomery here.

 

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