MONEY MANAGEMENT

A column on personal finance prepared by the Virginia Society of Certified Public Accountants

HEALTH INSURANCE OPTIONS FOR THE SELF-EMPLOYED

(July 19, 2004) — Finding and paying for health insurance is one of the most pressing concerns for self-employed workers. Although the cost of medical coverage is climbing, there is some good news. According to the Virginia Society of CPAs, you can now deduct 100 percent of health insurance premiums that you pay for yourself, your spouse and dependents, up to certain limits. And since it’s an above-the-line deduction, you’re eligible even if you don’t itemize.

Following is an overview of some of the health insurance options available to self-employed workers. Be aware that insurance laws vary from state to state, so you should start your search by checking with your state insurance department.

Consider COBRA Coverage

COBRA, the acronym for Consolidated Omnibus Budget Reconciliation Act, is the federal law that requires companies with more than 20 employees to allow departing workers to continue coverage in the company’s health plan for at least 18 months. The employee pays the full premium cost plus up to 2 percent administrative charges. COBRA might be the best option for a person with a pre-existing condition, such as diabetes or heart disease. Since you’re continuing your current coverage, you cannot be dropped or face exclusions. When your COBRA coverage expires, you may continue with the same plan at the individual plan rate.

Rely on Someone Else

If your spouse has health insurance from his or her employer, it is likely to offer better and less expensive coverage than you could get on your own. Some companies offer coverage to domestic partners as well. Most health care insurance plans no longer provide coverage for students once they’ve graduated, but some allow young adults to remain on their parents’ plan for a limited time.

Find a Part-Time Job With Benefits

For some self-employed workers, a part-time job with benefits can solve the problem of finding affordable health insurance. These jobs are hard to find and you also need to consider how part-time work will impact your primary career.

Join an Association

Going it alone in your business doesn’t necessarily rule out taking advantage of group buying power. Group rates may be available through membership in an association. Check with your local Chamber of Commerce, trade and professional associations and your alumni association if you’re a college graduate.

Find Out if Your State Offers “Group of One” Plans

Some states allow self-employed workers to purchase health insurance at group rates, as a “group of one.” Premiums for one-person group plans are significantly lower than premiums on individual policies, so it’s worth looking into this option.

Shop Carefully for an Individual Plan

The cost of an individual health insurance plan varies greatly, depending on your age, medical history and the insurer you select. You will need to submit a detailed medical history and, in some cases, pass a medical exam before you’re approved for coverage. These plans are expensive, so you need to shop carefully and compare prices.

Look Into a Health Savings Account

A Health Savings Account (HSA) is not a health insurance plan, but a special tax-sheltered savings account you can use to accumulate funds for medical bills. To be eligible for an HSA, you must be covered by a high deductible medical insurance plan. HSA rules are complicated, so study them carefully. On the plus side, unlike flexible spending accounts, at the end of the year, HSA funds that you don't use for medical bills are yours to keep to pay for future medical bills or to supplement retirement.

Consult With a CPA

Finding a policy to fit your needs and your budget will take some work. A CPA can help you get started.

The Virginia Society of CPAs is the leading professional association dedicated to enhancing the success of all CPAs and their profession by communicating information and vision, promoting professionalism, and advocating members’ interests. Founded in 1909, the Society has nearly 8,000 members who work in public accounting, industry, government and education. This Money Management column and other financial news articles can be found in the Press Room on the VSCPA Web site at www.vscpa.com.