Changes to Health Insurance Premium Deduction

We owe two types of taxes to the Federal government – Federal income tax and self-employment tax. You can reduce the amount of tax you owe by taking certain tax deductions – one of them being the cost of health insurance.

We’ve always been able to deduct the cost of health insurance from our Federal taxes, but still paid self-employment taxes on that money. So, if you made $20,000 last year and paid $5,000 in health insurance premiums, you’d pay Federal taxes on $15,000, but self-employment tax on $20,000. The new law evens it out – this year, you’d only owe self-employment tax on $15,000.

In case you didn’t know, the self-employment tax includes Social Security and Medicare tax (remember FICA from your days of getting payroll checks). All workers pay the tax, but regular employees only pay half the tax (7.65%) and their employer pays the other half. We pay the full 15.3% ourselves.

Reducing the self-employment tax will result in a slightly smaller Federal tax deduction. You’re allowed to take half the self-employment tax as a deduction on Federal taxes. But, since self-employment taxes will be lower this year, so will your Federal tax deduction for that tax.

How Much Will You Save?

The National Association for the Self-Employed says this change will save us an average of $468 to $968 in self-employment taxes. To figure out how much you’ll save, multiply your health insurance premiums by .153. This only works if your income is below $106,800 because you don’t pay Social Security tax (12.4% of self-employment tax) on income above that amount. You pay Medicare tax on all your income regardless of the amount.

“Yay!” for tax savings. “Boo!” for it being this year only. Send a letter to Congress if you want this deduction to be made permanent (seriously).

Disclaimer: I’m not a tax professional. I just read the news and study IRS.gov.

COBRA

COBRA is a Federal law that lets you know your employer’s group coverage and benefits for 18 to 36 after you leave your job. The catch: you have to pay the full cost of the plan. That monthly cost could be significantly higher than what you’re currently paying. How much more? It varies. If your employer covers a high percentage, e.g. 90%, of your health insurance premium, you’ll probably be shocked when you see your COBRA payment. (My COBRA payment was $418 per month vs ~$80 when I was still employed.)

COBRA will be effective as long as you make your payment on time and your ex-employer continues to offer the plan.

HIPAA Health Coverage Portability

If you’re currently on COBRA and it’s about to end or it ended less than 63 days ago, your state must allow you to buy insurance through the high-risk pool. You won’t be denied for pre-existing conditions, though there may be a waiting period for pre-existing condition coverage. You must have exhausted your COBRA no more than 63 days ago to be eligible.

Here’s a page with links to 35 states’ high-risk pool pages. If you live in one of the other states, health insurance companies servicing your state generally must offer a HIPAA-eligible health care plan. You may need to provide a certificate of eligibility from your COBRA administrator to be approved for the plan. (I went with this option after my COBRA expired in March. My plan is $318 based on my gender, age, and $2,500 deductible.)

Private Health Insurance

You can apply for health insurance directly with an insurance provider like United Health Care, Humana, or Blue Cross and Blue Shield. A website like eHealthInsurance.com can help you find health insurance companies that service your state. If you have no pre-existing conditions (your medical records will be reviewed), you’ll probably be accepted for private medical insurance.

A pre-existing condition is a health condition you had before you applied for medical coverage and can include something as common as asthma. Insurance companies may impose a waiting period before they cover pre-existing conditions, they may charge you a higher rate, or they may deny your application all together.

If you can’t get health insurance because of a pre-existing condition, consider COBRA or your state/Federal pre-existing condition insurance plan (discussed next).

Pre-Existing Condition Insurance Plan

As of March 2010, you have access to a health plan if you have trouble getting health insurance because of a pre-existing condition and you’ve gone six months or more without health insurance. (Why six months?) Some states, like Arkansas, California, and New York, have their own plans. Premium costs vary by state and range from $200 to $2,000 per month.

If you live in a state without a pre-existing condition plan, you’ll have access to the federal plan. Monthly cost is based on age, starting at $338 per month up and going up to $721 per month. HealthCare.gov has more information about the plan, including deductibles, prescription plans, copayments, and out-of-pocket maximums.

Note: In 2014, it will be illegal for a health insurance company to deny coverage based on pre-existing conditions. Supposedly that means health coverage for all that can afford to pay, but that’s 3 ½ years (and another election) away and much can happen between now and then.

Group Health Coverage

Check your local Chamber of Commerce to see if there are individual plans available. You may get better rates and coverage than if you went with private health insurance. Certain freelance unions also offer health insurance or health discounts:

• Freelancers Union
• Media Bistro
• National Writers Union (currently NY residents only. Nationwide program is in the works according to their website.)

High Deductible Health Plans

If you’re in good health and only go to the doctor for check ups, consider a high deductible health plan (HDHP). These plans have lower monthly premiums, but higher deductibles – a minimum $1,200 for an individual or $2,400 for a family. You can open a Health Savings Account (HSA) with an HDHP and deduct your contributions.

The drawback of an HDHP is that you have to cover your medical expenses out of your pocket until you meet your annual deductible. Because of that, your doctor may require you to prepay your medical services. If you get an HSA, try to get one with a debit card you can use to pay for your medical services. Otherwise, you can pay out of pocket and reimburse yourself out of your HSA.

Small Group Health Insurance

In some states, you qualify as a small group in terms of group health insurance eligibility, even if you’re the only employee of your business. If this applies to your state, your business can generally* get group health coverage without being denied for pre-existing conditions. These states define a small group as one with as few as a single employee: Colorado, Connecticut, Delaware, Florida, Hawaii, Maine, Massachusetts, Mississippi, New Hampshire, North Carolina, Rhode Island, and Vermont.

In all other states, a small group is a minimum of two employees (maybe you and a spouse). And in some states, the other employee can waive coverage, which is almost like having a group of one. Michigan, New Mexico, and Oklahoma define a small group as 2 individuals but have rules that require health insurance companies to grant coverage to self-employed workers (In, NM you must have at least one dependent).

*While Federal law does require health insurance companies to guarantee health plans sold to small groups, this guarantee doesn’t apply to sole-proprietors. Fortunately, some states do have “guarantee issue” requirements. I got these details from Kaiser State Health Facts.

Future Discussion

I originally intended to talk about the things you should consider when you’re shopping for health insurance – deductible, coverage limits, out-of-pocket maximums, etc. – but I went down this rabbit hole and liked how it turned out. In a future post, I’ll go over details on weeding through bad and ugly health plans to finding the ones that provide at least some decent benefits.

I don’t think it’s any secret that I despise oDesk. Why? Because they not only allow, but encourage, clients to cross the employer / client line with their software that lets clients actually watch you work, while you’re working from your own machine in your own home, etc. I’m not going to get into the problem with that here. I suggest if you’re a U.S. freelancer you spend some time learning your rights and doing some research with the IRS as to what clients can and cannot do without taking on the increased burdens of becoming actual employers.

Today there’s a new problem. oDesk is apparently pushing the idea that they’re offering health insurance to freelancers (oh, how original). But before you get excited, read carefully. It has absolutely nothing to do with insurance for freelancers. Instead, their new oDesk Staffing will give freelancers the opportunity to work as employees instead. What’s wrong with that? Not a damn thing if you don’t want to be a freelancer.

OK. So what’s the problem? Well, you see, there’s a little catch. Actually, there are several:

• To be eligible for the benefits you have to work for them 30 hours a week. No biggie.
• To be eligible you have to work for hourly pay. If you get paid per word, per piece, etc. (typical in freelance writing as well as some other freelance fields), you’re not eligible for the benefits because it’s all based on your hourly commitment.
• Wait now, here’s the kicker. Want W-2 employee status? You have to pay them for it! Can you believe that crap? You PAY for the “privilege” of giving up your freedom as a freelancer. You PAY for the privilege of having a job. That my friends is complete and utter bullshit. Why do they charge 20%? To cover their “services” of course! What services you might ask? Oh, just the little things they’d be required to do the moment they choose to take people on as employees instead of having them work as contractors — things like tax withholdings. Say it with me now – “Bull. F*ing. Shit.”

This is really getting ridiculous (and of course, yet again, we have a program being promoted before the company’s releasing all of the details). Folks, look. If you don’t want to be freelancing, then by all means stop freelancing and take an employee job somewhere. But if you freelance, take responsibility for yourself. Get your own health insurance. Get your own benefits of every variety. That’s a part of being self-employed. If you can’t afford those things, then you’re not earning enough and either you need to rethink your rates or you need to rethink your marketing strategy because something isn’t working.

Just do me a favor, please. Don’t get sucked into these promises and “deals” without looking at them thoroughly and critically first. And don’t get your hopes up about anything a company isn’t willing to be completely transparent about up front. If they weren’t ready to release the details, they probably should have kept their mouths shut. And how about some truth in advertising please? From their oDesk Staffing page:

“Access benefits previously unavailable to freelancers, such as group health insurance and 401(k) retirement plans”

Newsflash: those benefits are STILL unavailable to freelancers. If you take on W-2 status in order to be eligible for the benefits, you will not be a freelancer. You will be an employee. Alright. I’m going shut up because if I think about this anymore my head might explode.

Demand Studios Health Insurance Plan Highlights (From their Website):

• No deductible or co-pays
  
• Guaranteed acceptance: There are no medical tests or requirements to disclose ailments or family history, etc.
• Pre-existing conditions are covered. The only exception is if you know you are pregnant, you cannot join the plan for that purpose. (Other than in California where there is no such requirement).

Re: Deductibles and co-pays- While the Demand Studios health insurance plan has no deductibles or co-pays, it does have out-of-pocket costs and it also does not offer the same limits as a traditional health insurance plan. In addition, any cost over the provided benefit will need to be paid by the patient:

Excerpt from page 4 – Note limits and amounts covered per plan option

Re: Pre-existing conditions- Per Demand Studios health insurance plan documents linked above, pre-existing conditions requiring critical illness care are not covered for 12 months:

From page 3

Demand Studios Health Insurance – Pros

• With this program, participants will visit a network of physicians who have agreed to provide discounted services to members. While the cost of your care may still exceed the benefit paid by the program, your total cost could amount to less than it would without the negotiated discount. Tip: Comprehensive health insurance plans generally offer negotiated rates (or usual and customary rate) when you visit in-network providers so that your expenses are limited even if you have to pay a coinsurance rate. If possible, speak with a local agent and find out if you can compare the negotiated rates of a comprehensive health insurance plan and the Flex Benefit Program. Be sure to factor in the co-pays or deductibles in the health insurance plan as well as the visit maximums in the Flex Benefit Program.
  
• The program includes vision benefits.
• The program includes dental discounts.
• The program includes prescription discounts. Tip: Check your local Publix, Wal-Mart or other pharmacy and find out what their prescriptions costs are for those you take regularly.
  
• You have access to a 24/7 nurse hotline.

Demand Studios Health Insurance – Cons

• The Beech Street PPO network may not have your healthcare providers or local hospitals in-network. Tip: Visit the Beech Street website to find out.
• The Demand Studios health insurance plan maximums may not cover the total cost of any doctor visit or procedure.Tip: Call your local Beechtree network doctor and find out if the doctor visit costs as much or less than the maximum benefit ($50-$75 depending on the plan you choose, see page 4). You may be able to do this for other services as well to help determine the value of the plan to you.
  
• There are no plan maximums, which means there is no cap to the amount you could spend out-of-pocket. Tip: Traditional health insurance plans generally offer out-of-pocket maximums. A plan with a deductible of $5,000 may seem high but if you check with your local agent, you can compare the out-of-pocket expenses and determine whether you actually have less at risk with a traditional health insurance plan and a deductible than you do with the FlexShield Benefit Program.
  
• The insurance benefit per prescription ($5, $10 or $15 depending on your plan) along with the prescription discount may not provide a substantial prescription savings. Also, participants with pre-existing conditions and a large number of prescriptions may find the coverage too limited. Tip: Check your local Publix, Wal-Mart or other pharmacy and find out what their prescriptions costs are for those you take regularly.
  
• The Critical illness coverage is once per lifetime.
• The Demand Studios health insurance option is not available to all writers working for the company. A content threshold must be met during a consecutive three-month period in order to determine eligibility.

The Concerns

Concerns you may want to address with an independent agent and IPS before you terminate any existing coverage for this Demand Studios health insurance plan:

• This program may not meet minimum creditable coverage standards in states like Massachusetts that require health coverage.
• In order to avoid pre-existing conditions waiting periods in group plans, you must have continued creditable coverage with no gaps of more than 63 days. If you give up your existing individual or group health insurance for this program and you or your spouse get a new job and request coverage under the group plan, your pre-existing conditions could be exempt for 12-18 months because you did not keep creditable coverage.
• If you give up COBRA coverage for this program, you will not be able to reinstate COBRA.
• If you leave a health insurance plan in favor of this program, you may not be protected under HIPAA.
• This program may not be as portable as an individual health insurance policy and offers no COBRA if you stop writing for Demand Studios (although there is no indication that this would be grounds for termination).

The Fine Print

End Notes

Before you make any decisions to purchase this Demand Studios health insurance program or those offered by your local union, it is a good idea to explore alternatives with your local insurance agent. He or she can help you understand the real costs and risks associated with every limited benefit program and comprehensive health insurance plan. This post is not meant to encourage or discourage enrollment into the program.

* Yolander Prinzel is a licensed life, health and variable annuity agent (2-15). She does not actively solicit clients for insurance purchases or sell any insurance products. She is also not appointed to sell health insurance with any insurers.

I don’t mind doing that. This year I’ve spent a small fortune on dental work and have another small fortune to spend on the next round of it (my teeth suck, what can I say?). And today I’ll be going to the doctor due to illness for the first time in 7 years. I just never get sick, so I don’t have to make these kinds of appointments.

The medical and dental basics aren’t really that unaffordable if you set money aside for them. But I’m not naive enough to think I’m invincible. I know there could be serious health issues at any time, from a car accident to coming down with a serious disease.

Because of that I’ve looked into some health insurance programs recently. I have to say that there isn’t a single one I really found attractive at all. With the dental plans specifically, they tend to cover so little that it’s frankly cheaper for me to just pay out of pocket for the more complicated work than covering the premiums, deductibles, and remaining payments due. So that I’ll probably avoid. But I’m still keeping my eyes peeled for decent general health insurance.

Being a woman nearing 30, it’s important to me that health insurance cover maternity benefits in case I decide to start a family in the foreseeable future. The vast majority of plans I’ve looked at (through organizations I’m involved with) don’t even offer that as an add-on option. That’s just crazy to me. And then of course you get the plans with ridiculous deductibles like $20k or something — at that point, again, you’re likely better off just covering the costs yourself outright.

I don’t know. It’s not a huge issue for me personally right now, but I figured I’d get your thoughts. Are you insured? What was it like for you choosing health insurance as a freelancer (or were you covered by a spouse’s plan perhaps)? If you have any tips or recommendations you’d like to share with other freelance writers who might be interested in securing insurance, feel free to leave them in the comments.