I get asked this question often by CFOs who want to start an independent consulting practice, “Mark, what about health insurance?”
If your spouse is still working, the answer is easy to this question. Get on or stay on that plan as the cost should easily be lower than self-employed plans.
My consulting business started in 2001, and I was the sole financial breadwinner in the family. I had to find insurance. If you find yourself in a similar situation, you will not like my answer, but at least I can relate to you if your research is yielding frustrating results.
Let me start with a qualifying statement. I don’t hold myself out to be an expert in this arena. Nor am I a certified financial planner. All I can offer you is experience and transparency. Health insurance brokers exist in your city. But rarely can they offer a better plan than what you uncover alone.
The Good News and the Bad News
Let’s assume you must reach out to the marketplace for health insurance. The younger you are, the cheaper the insurance will be. Family plans will always be higher, especially the ones that pay for pregnancies.
The bad news is that age is the enemy of health insurance premiums. When I turned 50, both term life insurance and annual health premiums started jumping upward at a rate far higher than in the earlier years. That’s life in the actuarial tables. That’s why from day one I selected the highest deductible that I could find. That’s still the case with my plan today.
But there is good news to temper that bad news. Older people (say, older than 50) have more savings tucked away, and for those of us who started saving pre-tax dollars in our MSAs (now HSAs), the blow is softened for out-of-pocket costs thanks to the excess cash in those accounts.
Don’t Overlook DPCs in Your Area
I now have a heightened sense of awareness for DPCs in my community because I was asked to coach a young CFO in a growing practice. DPC stands for direct primary care. DPCs charge a subscription-friendly rate to visit their office at any given time. More important, prescriptions are much lower in cost than what you would pay at a local pharmacy.
I’ve been recommending these plans to my clients, but they are more than suitable for you and your family.
You may also want to bookmark the Surgery Center of Oklahoma. If I ever need surgery of any kind, my due diligence starts on their website. I love their site because every procedure listed shows a price.
Trade Associations
I don’t like to write or talk about something about which I possess little or no knowledge. For nearly 20 years, I purchased my disability insurance through the AICPA which offered a great benefit at an extremely low rate. I also had term life insurance through them (underwritten by Prudential) which was also ultra-cheap. Plus, I got back about half of my premium annually through their rebate program.
If the AICPA had low-cost insurance products, what about other trade and professional associations? I never could find such a health plan through endless searches. Maybe I was searching in the wrong places.
The only thing I can offer you is this link at The Hartford where they state:
You may be eligible for a group health plan through a professional, trade or membership organization. The members of such groups share the cost of medical insurance in much the same way the employees of a small business do.
The Hartford
They offer a few suggestions, and those organizations could lead to some ideas in your hunt for alternative sources of health insurance.
There are No Guarantees In the W-2 World
My family and I have been blessed with no catastrophic illnesses of any kind. My family of five has been a healthy bunch from the beginning. As an empty-nester couple now with just two people on my health plan, that remains the case today.
If you think life would be easier and lower in cost if you were an employee getting health benefits, are you so sure?
What would happen if you were in a terrible car accident which resulted in numerous broken bones and going into a coma for a few weeks? How long would you remain an employee of that company? Just who would take financial care of you and replace your lost salary? That’s a terribly extreme catastrophic example. But there are no long-term guarantees in the W-2 world.
As solopreneurs, we have more control over our financial and health condition than if we were employees. That’s because we make more money which means are can start becoming more self-insured than if we were an employee going through a serious health setback requiring months of medical care.
And this leads to several strong pieces of advice:
- Save as much as you can. Don’t live high on the hog. Making $300,000 or more for the first time in your business looks like a lot of money. Don’t squander it. Save and invest wisely.
- Stick to high-deductible plans with your search.
- Max out your HSA annually.
- Remember the big three in health – eat right, do strength conditioning, and get plenty of sleep. Quit smoking if you do. The premiums are significantly higher for smokers.
- Keep your mind active, especially in the later seasons of life.
If you decide being a W-2 employee is better for you and your family. That’s fine. My argument is that the cost of health care isn’t as bleak as it appears. Your annual cost of health insurance on a pre-tax basis is still small on gross earnings exceeding $300,000, which you should be earning at a minimum. Additionally, when you factor in the five points of the advice above, insurance becomes an investment, not a cost.
What Do You Really Want?
As I observe Twitter comments from freelancers about the cost of health insurance, I sense fear and trepidation and that going back to the W-2 world is still a consideration.
If that’s your decision, that’s okay. No one will fault you. But I do want to offer two ideas to think about.
First. you’re not alone. Have you forgotten that many of the CEOs you are serving are sole proprietors who are in the same boat you are in? Even though I’ve only met Paul Downs once, I consider him a friend. While Paul is part of his company-sponsored plan, he has a special needs child, and those medical costs can be astronomical. You are now an entrepreneur just like Paul. Paul continues to add value to his customers through his unique capabilities. He’s figured out how to manage his cash situation in spite of the high medical bills he faces regularly. If Paul can do this, so can you.
Second, deep down inside your mind, you have to decide if you want to be a member of the results economy or the time-and-effort economy. In the time-and-effort world, you are expecting someone else to take care of you. In the results economy, you are taking care of yourself by taking control of your situation. You have an unguaranteed and limited upside in the time-and-effort economy. Not so in the results economy. Thank you, Stephanie Song, Gary Klaban, and Dany Sullivan, for that inspiration.
Exceptions to The Rule of Great Advice
I believe in everything I’ve stated above. If you sense that I think being a freelancer is better in spite of the scary health insurance premiums, you are right.
But I’m not dissing W-2 employment, especially in certain situations. I have Jake H. to thank for his situation.
I was a VP of finance at a large, family-owned business in rural Missouri. One of our investments was an environmental laboratory with clients across the country. Their CEO was a person named, Jake. Ultimately, he was released. I liked Jake, and I thought he’d make a great consultant. Instead, he took a position he held for nearly twenty years at a nearby university at their innovation center. He took that position because he needed health insurance coverage for prior conditions. He told me he could not find a policy for self-employed to address his unique health needs.
If you face a situation similar to Jake’s, W-2 work is probably your best solution. Even though Jake was let go, his strong reputation preceded him, so finding employment was not hard. He was willing to take a lower-paying position in exchange for a great health plan which he found in a state-paid position.
A Final Checklist
I debated on whether I should include a checklist or not. By including it, I fear I’ll leave something out. Then again, you are an expert on due diligence of all things. Accordingly, use this as a starting point, but caveat emptor:
- Reach out to a local broker who sells health insurance and is not limited to just one carrier. Incidentally, this is a chance to add a third-party expert to your potential referral sources. Make sure you ask them who their ideal customer is so that you can help them. In turn, they will probably want to learn more about your practice and want to reciprocate. If you need help finding such a broker, contact a few certified financial planners. They’ll be able to help you.
- Concurrently, do a web search on the string, ‘health insurance for self-employed’ or something similar. You’ll find at least four of the big providers with self-employed plans. Sorry, I’m excluding names and links before over time, there will be name changes and acquisitions. That is, this marketplace changes every four to five years. My provider allows you to find plans and see the premiums given the data you input.
- Try to stick to plans with high deductibles tied to HSAs.
- Do a search on ‘alternative health insurance plans. Some are faith-based. The ones that exist are self-funded and are essentially cost-sharing plans. The ones I have checked out are legit, but I never took the plunge.
- Don’t forget to check out your local DPC practices. If you have to pay for primary care out-of-pocket due to your high deductible, then a DPC subscription may pay for itself.
I know this is a discussion about health insurance. If you are new in this business, load up on cheap term life insurance if you are young. I still believe that disability insurance is underrated, and it’s generally cheap up until age 50. Don’t ignore these two coverages as you start your practice. Health coverage is not the only insurance you’ll be managing. Accordingly, you may want to add disability and term life to the checklist above.
Did I leave anything out? If so, ping me on LinkedIn, and I will make the change.