May 7, 2015
Health Insurance isn’t exactly a sexy topic for entrepreneurs. Nor are taxes. I have a surprise. Combine those two things and you do get a sexy topic: money. Lots of money. Money you could be saving by taking the right steps as an entrepreneur when it comes to hunting down an individual health insurance plan for yourself.
The Affordable Care Act (ACA) made this hunt simpler, but it obfuscated the details. There’s a lot more to individual health insurance plans than “Bronze“, “Silver“, and “Gold” levels.
I run a small business myself. I work from home; we have consultants in various locations. I don’t exactly have a risky job (web design and CMS development don’t tend to break bones). Like you, I didn’t have time to sort all the individual health insurance plan details. So I didn’t. I was busy running a business! On an trip to Ireland, I managed to break my elbow mountain biking and get myself denied for health insurance as an young entrepreneur.
Avoid the mistake I made; follow this guide and get individual health insurance coverage. Let’s start with the basics.
What Types of Health Insurance Cover Plans Exist?
There are three primary types of plans. Here are the basics:
Health Maintenance Organization (HMO)
HMOs generally lower the cost of care by way of limiting provider networks you can access to utilize your health insurance. They do this by way of the actual network providers (doctors, hospitals, specialists) and by utilizing a gatekeeper. This gatekeeper, a Primary Care Physician (PCP) requires you to obtain a referral through them before visiting specialists, even within the network.
Preferred Provider Organization (PPO)
PPOs generally have a higher average cost per level service coverage amount compared to HMOs. This is because PPOs provide more choice. They do not require a PCP in order to access specialists. They also provide access to out-of-network providers. The coverage levels of in-network providers are generally lower than with HMOs, and lower still with out-of-network providers; but they offer more choice.
Point of Service (POS)
Finally, POSs combine advantages and disadvantages of PPOs and HMOs. They do this by requiring a “gatekeeper” PCP to access specialists, yet allow lower-level coverage access to out-of-network providers.
Every health insurance plan, aside from the top level “type” of plan (HMO, PPO, POS), will offer varying levels of coverage through different cost categories: copays, deductibles, coinsurance, out-of-pocket maximums. You’ll want to make sure the plan cost and coverage levels for these expense categories match up with your strategy. Take a look at this detailed, in-depth guide to individual health insurance on these cost categories if you’re looking for more than just CliffsNotes.
Now that we have a grasp of the types of plans and their coverage categories: what fits well with most entrepreneur mentalities?
Save Money: Invest in the Right Health Insurance Plan
Most entrepreneurs I know tend to find themselves around the world on trips, not very rooted in a home location. They need choices and flexibility. That lines up well with a PPO. In addition, most entrepreneurs will trend on the younger side: they probably won’t have severe injuries or major health complications. PPOs are great for preventative care and flexibility. You may be wondering how this is really going to save you money.
Let me introduce you to the key: a Health Savings Account (HSA).
What’s a Health Savings Account?
HSAs act like an IRA except that, in addition to being able to invest with tax deducted dollars, you can also pay for medical expenses! There are some qualifications that your health insurance plan must meet in order to qualify for an HSA; but your inexpensive PPO probably does. It must be a High Deductible Health Plan (HDHP). The requirements change yearly, but for 2015 this means the deductible on your PPO must exceed $1,300 as an individual. In addition, you’ll have a maximum contribution amount of $3,350 as an individual; similar to an IRA.
Ultimately, HSAs have all the retirement savings and tax savings advantages of an IRA but with the added benefit of being able to pay for medical expenses with the tax advantaged dollars.
This is How You Save Money
In practical terms, let’s say your PPO’s monthly premium is about $125 per month (typical in Richmond, VA where I am for a healthy 20something). If you take full advantage of the contribution maximum in your HSA of $3,350, your tax savings might nearly pay for your total insurance cost. If you’re a successful entrepreneur and paying a reasonable federal income tax bracket, $3,350 in tax deductions can yield a tax savings of nearly $1,000!
If you don’t already have health insurance, avoid the ACA fee and get it taken care of today, open an HSA, and reduce your total cost dramatically. It’ll be one less problem to worry about while you’re mountain biking in Ireland.
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