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health insurance for freelancers



Health insurance for US-based freelancers

Note: this post originally appeared as a newsletter to my mailing list, but I received so much feedback on it that I decided to publish it here as well. Thanks to all the readers who responded with your own stories about health insurance!

Here in the US, it’s health insurance open enrollment time, which means that you can purchase a new plan, change plans, switch to a new flavor of plan, etc. For many freelancers (and from here on out, by “freelancers,” I mean those who work in the US), health insurance is a source of great stress and frustration, not to mention great expense, so let’s look at various options, and some out-of-the-box options as well.

-Under the Affordable Care Act, the good news is that ACA-compliant policy issuers cannot decline you because of your health history, cannot refuse to cover pre-existing conditions, and cannot drop you for using the insurance too much. Under the ACA, insurance companies can only ask your age, income, family size, address, and what type of coverage you want. For those of us who purchased (or tried to purchase) individual insurance on the private market in the pre-ACA days, these two things are a huge relief.

-But…even under the ACA, health insurance premiums can be extremely expensive. If you want to geek out on the statistics, here’s the report from the National Conference of State Legislatures on that topic. Many people do qualify for subsidies under the ACA, so it’s worth talking to an insurance broker about what the options are in your state and whether you would qualify for a subsidy.

–With premiums (and deductibles) rising–anecdotally, I’ve talked to freelancers who make just over the subsidy cutoff (about $52,000 if you’re single) and who pay close to $1,000 a month for an individual policy–people start looking at other options. Ed Gandia recently devoted an entire episode of his High-Income Business Writing podcast to the topic of medical cost-sharing plans and health indemnity plans. Long story short, these are health coverage plans that–because they are not technically insurance–are not subject to ACA requirements. This podcast episode is great, in that it gives actual case studies with costs, from people who had catastrophic health events and used this type of coverage. Definitely a recommended listen if you’re considering this type of coverage.

-If you’re under 30 years old (in which case, enjoy it while it lasts!!), or if you meet certain “hardship” criteria, you may be able to buy catastrophic insurance that is ACA-compliant. This coverage has lower premiums, but a very high (about $8,000) deductible.

My take: The US health insurance system is very problematic by any definition. Many people are in the unenviable position of paying a lot of money for an insurance policy that they are still reluctant to use, because they have high deductibles or co-pays. Still, there are two facts you can’t get around:

1. No healthy person anticipates having high medical expenses (i.e. “purchase this high-deductible plan if you don’t expect a lot of medical bills”). This kind of language–which a lot of insurers use, drives me crazy, because no one anticipates a stage 4 cancer diagnosis, or a life-threatening car accident, or the sudden onset of a chronic condition. Yet, these things happen to previously-healthy people every day.

2. No one, aside from people in the Warren Buffett and Bill Gates category, has enough money to pay out of pocket for US-priced care for a catastrophic event, or even–and this is important–to pay out of pocket for such an event and then be reimbursed. This reminds me of my accountant’s adage, that “Everyone has a retirement plan. Either you’re financially planning to retire, or you’re planning to work until you drop.” In the case of health insurance, either you have a health plan with decent coverage, or you’re planning that you’ll exhaust your savings and then declare bankruptcy if something truly catastrophic happens to you.

Here’s an example: in my family, we have the polar opposite examples of health insurance costs versus medical expenses. I’ve been an adult (off my parents’ insurance policy) for exactly 25 years. In those 25 years, I’d conservatively estimate that I’ve paid about $60,000 in health insurance premiums and perhaps closer to $100,000, while my medical expenses–including having a baby in a hospital–have probably totaled less than $25,000; perhaps even less than $15,000. The insurance companies are clearly on the winners’ side here, but that’s what insurance–whether it’s health, car, homeowners, or something else–is all about: paying for coverage that you hope to use as little as possible.

The other side of the coin is my husband, who is a case study in the two factors I mention above. Literally out of nowhere–“something didn’t feel right” after a hike in the mountains above our house–he landed in urgent care and then the emergency room with severe fatigue related to low blood pressure and low heart rate. And we’re talking about a guy who’s a lifelong endurance athlete and a vegetarian–if you made a list of 100 people who might develop a sudden and catastrophic health problem, he would be nowhere on that list. After two years and over $200,000 of medical expenses including a pacemaker, he was finally diagnosed with an obscure neurological problem that causes his central nervous system to mis-regulate his heart rate and blood pressure. On most days, he feels OK, and is able to continue working and doing his endurance athlete thing. This condition is not life-threatening or catastrophically debilitating, but it will require lifelong management and also means that he cannot go without insurance for even a day, ever again. This experience showed me a few things:

1. Catastrophic medical events come out of nowhere and have to be treated immediately. Saying that if you have high medical needs, you’ll shop around or perhaps be treated in another country is fine if you’re talking about something non-emergent. But in an emergency, you’ll be terrified, and you’ll just do what the doctor tells you to do, which will be expensive.

2. Medical procedures can cost more than you want to pay out of pocket, even if you get reimbursed later. A hallmark of many out-of-the-box health plans (like most health cost sharing plans and medical indemnity plans) is that you must pay your medical expenses up front and then be paid back by the plan. This is fine for things like routine checkups or even minor procedures. However, having been on the receiving end of a $50,000 bill for one procedure, I now see that requirement in a different light.

Like most middle-class people, the majority of our family’s wealth (term used lightly!) is tied up in our house, and in assets like retirement accounts and mutual funds that cannot be immediately accessed. We don’t keep $50,000 in our liquid bank accounts, and we don’t even have a credit card that would allow us to charge that amount. After I published this article in my newsletter, I heard from readers who’ve had sudden, emergency hospitalizations that totaled even higher amounts, well into the six figures. Were I to consider a cost-sharing or indemnity plan, I would ask the company that question: what happens if I get a bill that exceeds the amount of cash or even credit that I have on hand? If I get a bill for $150,000, am I still expected to pay it and wait to be reimbursed?

In light of these factors, I still think that the best option for most freelancers is–if you don’t get insurance through another route, such as a spouse’s job–to purchase an ACA-compliant plan, combine it with a health savings account, and make sure that you see the deductible as a likely cost rather than an unlikely one. If you’re using an out-of-the-box option, I’d love to hear about how it’s gone for you. General rants about the US health insurance system are also welcome in the comments!



Health insurance for freelancers–regardless of your political views

If you’re a US-based freelancer, you’ve probably been tracking the congressional health insurance negotiations fairly closely. Regardless of your political views, health insurance is a huge issue for freelancers in the US. The reality is that there are people who cannot be freelancers if they cannot purchase individual health insurance coverage (meaning coverage not provided by an employer). The Affordable Care Act is far from perfect, but it was a huge boon to many freelancers. In the pre-ACA days, many Americans experienced a phenomenon known as job lock–the inability to leave their job for fear of losing their health insurance. Job lock’s cousin is entrepreneurship lock–the inability to be self-employed because of the inability to get health insurance–a real concern for many people before the ACA’s guaranteed-issue policies came to town.

How bad was the pre-ACA situation? If you were young, healthy, had no pre-existing conditions and didn’t plan on having children anytime soon, it was OK. My family of three paid for individual insurance for about six years after my daughter was born, and the costs weren’t pleasant, but they weren’t crushing either–perhaps $800 a month for the three of us. But if you broke that mold–let’s say you had pre-existing conditions, or multiple pre-existing conditions, or you were a cancer survivor, or you were pregnant, or you had huge health expenses and then your insurance company dropped you–the reality was grim, because insurance companies in the individual market could decline or drop whoever they wanted. I have freelancer friends who were declined for relatively minor pre-existing conditions that were well-controlled with medication (i.e. high blood pressure). Others stayed in salaried jobs that they hated, simply for the benefits. Others were quoted upwards of $30,000 a year for insurance for one person. The expression “uninsurable on the individual market” (should anyone ever have to hear that??) came into play, and some people simply could not be freelancers because of it.

At the same time, the number of self-employed Americans has been increasing, meaning that fewer people have access to group coverage through an employer, where the insurer is required to cover everyone. Studies and surveys differ on this, but various sources seem to agree that up to a third of Americans are either fully self-employed or don’t have access to insurance through an employer. Perhaps the most shocking statistic comes from the Kaiser Family Foundation’s white paper on pre-existing conditions: “We estimate that 27% of adult Americans under the age of 65 have health conditions that would likely leave them uninsurable if they applied for individual market coverage under pre-ACA underwriting practices that existed in nearly all states.” That’s a pretty staggering figure, especially if you’re:

  • a freelancer
  • with pre-existing conditions
  • over 26 and under 65, meaning you can’t be on a parent’s policy or on Medicare
  • not married to someone who has employer-based health insurance that will take you

These days, we get our insurance through my husband’s employer. It’s not perfect either; the only plans they offer are high-deductible, and my husband had some significant health issues that–of course–wrapped over two calendar years and resulted in $12,000 in out-of-pocket expenses toward our deductible. But there’s a big difference between using your rainy-day fund to cover deductibles and fearing that you might not be able to purchase health insurance at all, or that your insurance could drop you for running up large medical bills.

To me, this issue is not political. If the current Congress can come up with a system that provides better coverage to more people at a lower cost, who wouldn’t support that? But a return to the pre-ACA situation where insurance companies could decline or drop anyone, or accept those people at premiums that no one with a normal income could afford, will have a devastating effect on all types of freelance-heavy professions. Lots of people dismiss the individual insurance market, as if it applied to five people in the entire US. Whatever your political views, tell your senators and representatives that the individual insurance market is hugely important to millions of people, many of whom may not be able to continue being self-employed without that coverage.