No Comments March 13, 2008 – 9:19 am

Self-employment does indeed come with a long list of trade-offs and one of them is having to bear the entire burden of buying health insurance. When we have health coverage from an employer, we are typically asked to pay a percentage of the cost and perhaps some co-payments to receive benefits and use services. This was typically a relatively small amount deducted from your paycheck ($20-50, depending on length of pay period). But, to use COBRA and buy that same coverage after leaving to go into business for yourself might cost you anywhere from $200-500 per month! And while temporary health insurance can potentially be found for 36 months, you will eventually need to find a permanent solution to your health insurance question.

Like any commodity, good, or service, health insurance rates are always cheaper when plans are purchased in bulk. An employer, for instance, might need to secure a plan that will be able to cover 500 employees. Independently, those same employees could indeed expect to pay an average of $400 per month for health insurance covering children and family members. But, because there will be 500 enrolled in the plan at once, the insurance company can offer that same level of coverage to all members for perhaps an average of $250 per month.

The difference in pricing between individual and group insurance policies is related to the statistical probability of each person having a major claim (though the amount varies by company, a major claim is any that exceed the maximum payout of services in any calendar year beyond routine examinations and screenings). Depending on the work environment and the industry type, the odds of payout should be more consistent with a larger sample size. By carefully structuring rates and accounting for hundreds of variables, a health insurance company can potentially make more profit and thus offer a bigger discount so long as their information and projections are accurate.

Essentially, one person might pay an insurance company $400 per month for 12 straight months and develop some dangerous but treatable cancer. Treatment and medical procedures might well add up to $100,000 with the policy holder only paying in a total of $4,800 - on this policy, the company is already down $95,200 and unlikely to ever see a profit even they recovered and continued paying premiums for another 15 years.

But, with 500 people paying in an average of $250 per month, the company would collect $1,500,000 in premiums. If their statistics indicate that only 5 major claims should be filed by employees in the coming months at a cost of $100,000 each, then the company would make a very acceptable level of profits so long as the other services were utilized as anticipated. Because larger groups of people create larger sampling sizes and thus a greater degree of statistical probability, health insurance in less expensive if purchased in bulk.

While the self-employed individual may not be able to buy in bulk the way a larger employer might, it is possible to find health insurance plans that allow hundreds, sometimes thousands of independents like yourself—enjoy the advantage of buying in bulk to receive independent health insurance. You are still a contributing and participating member of a cooperative that is buying health insurance—just not through your employer.

An independent health insurance agent (rather than someone who is working for a specific company) is probably the best place for the self-employed to find the lowest rates using these cooperative health insurance policies. As opposed to an agent working for a specific company who naturally will promote their organization’s products, an independent agent will promote the policies that are in your best interests - no matter who happens to be selling them.