Q: I want to start a business. What do I do about health insurance?
A: Due to the cost and difficulty of obtaining health insurance in the United States, tens of thousands of people are hesitant about starting their own businesses. This, in turn, prevents innovation and economic growth. According to Statistics Canada, Canada's central statistic agency, and the U.S. Bureau of Labor Statistics, the most significant reason that a higher percentage of Canadians are self-employed than Americans is that all Canadian residents are entitled to public health insurance coverage.
In the United States today, both employed and self-employed Americans face steep health insurance costs. According to a survey done by the Kaiser Family Foundation's Kaiser Commission on Medicaid and the Uninsured, the cost of health insurance has been increasing at three times the rate of the rise in worker earnings. And on average, employees now pay more than $2,400 per year toward their employer-provided health insurance. So starting your own business may be your best bet for keeping up with the high cost of health insurance.
Many self-employed individuals find that the best way to keep their health insurance costs within reason is to get into a group plan, such as those offered through industry associations and professional organizations. The first task is to find a group that offers quality health insurance at a reasonable price. Be willing to look far and wide for the largest groups possible. You may find that your local chamber of commerce has arranged a group plan for its members. National business organizations also offer health insurance.
In addition, some self-employed individuals find health insurance through their college alumni associations, and some through unions. If you've incorporated your business, or if you have employees, another possible way to get group coverage is to lease your employees, including yourself, from an employee leasing company. You can identify these companies by occupation or state at the National Association of Professional Employer Organizations website.
Some cities like San Diego are forming separate legal entities to offer health insurance plans to small businesses. San Diego's plan requires a business to have at least two employees, so a husband and wife working together will qualify.
Once you've identified several plans, compare both the costs and benefits. Beware of "bargain" rates. They may be offered by companies with lots of complaints about nonpayment of claims, or they may be outright scams. Always check these two things with your state insurance agency: First, make sure the company you get your health insurance from is registered to sell insurance in your state. Second, check out its record of complaints. When claims are unreasonably denied and medical bills go unpaid--as happens to too many people every year--"bargain" insurance is no bargain. One of several websites that will link you to your state's insurance department is the National Association of Insurance Commissioners.
If you have a pre-existing health problem, like a lower-spine injury or a chronic illness, you'll have a bigger problem because most groups screen individuals applying to join. Even if you can get into a plan, it's apt to have an exclusion for your condition. In this case, you may be able to buy a separate policy covering just the risk. If you find yourself in this situation, find out if your state mandates guaranteed issuance of policies. Many states do, and some states, such as California, Colorado, Connecticut, Maryland and Texas have specific provisions for small businesses. However, rates are apt to be much higher, and it's best to talk with a health insurance broker. You can find a broker in your area through the National Association of Health Underwriters.
Even in a group, decent health insurance won't be cheap. If you need guaranteed coverage, it will cost you between 10 and 50 percent more than regularly issued insurance, and there may be a waiting period before pre-existing conditions are covered. In cases like these, we advise working with a knowledgeable agent to get the best coverage you can.