Self Employed: Small Business Health Insurance Tips
Below is the transcript of a Small Business Trends Radio Show episode featuring Sam Gibbs, Senior Vice President of eHeathInsurance, which was broadcast on July 21, 2009 titled, “Tips For The Self Employed On Health Insurance.”
TIPS FOR THE SELF EMPLOYED ON HEALTH INSURANCE
Anita Campbell: Hello and welcome to the show. I’m Anita Campbell and I’m the host of Small Business Trends Radio.
Steve Rucinski: Hi, I’m Steve Rucinski, today’s co‑host. Our show today is about “Tips For The Self‑Employed On Health Insurance”. Affordable health insurance, is really hard to find these days, and sadly as a result, many are forced to go without it.
Anita Campbell: Steve, could there be a more timely topic than health care and health insurance than today’s show? All you hear about on the news is health care reform. There’re so many proposals floating around and so many complexities to this issue, that it really is a challenging one for people to sort out.
But, the good news is that we have a guest today who is going to help us navigate through some of this, and explain some of the complexities, make them simple for us, as well as explain some of the actions that you can take as a self‑employed person or a small business owner to make sure that you get insurance coverage for yourself, and your family and whoever you need it for.
So, with that, let’s get started. It’s with great pleasure that I welcome Sam Gibbs to the show today. Sam is the Senior Vice President of eHealthInsurance. Sam, it is so nice to have you with us today.
Sam Gibbs: Thank you. It’s a pleasure to be here with you both.
Anita Campbell: Before we jump into this topic of health care, this huge, gigantic topic and try to tackle it and wrestle it to the ground, why don’t we start by easing into it and tell us ‑ if you would ‑ a little bit about your background and how you came to end up at eHealthInsurance.
Sam Gibbs: Yes, certainly.
I came to this from a total different industry. I’m actually an Air Nautical Engineer by degree and spent five years in the Aero Space industry. Then I founded a company, a small business if you will, that was in the engineering services business and ended up running that for 15 years. As part of that, one of the biggest struggles I had as being the president of a small company, was finding and keeping affordable health insurance.
So, I was fortunate. I was able to sell that business. I joined eHealthInsurance almost at the beginning about nine years ago. For the past nine years, I’ve been in head first if you will, in this whole health insurance for mostly small businesses and individual families. I’m very passionate about it. I’ve learned a lot over the past nine years, and I’m really looking forward to helping your listeners learn a little bit of what I’ve learned.
Anita Campbell: You alluded to something in your remarks that were really interesting about how you spent time on health insurance. I find that to be one of the most discouraging thing about the whole health care thing, is that small business owners have to end up spending time away from their businesses trying to sort through this maze of health care. I guess that’s why we’ve got you on the show to talk a little bit about this. Let’s talk about the obvious. Is it important to have health insurance? Why not just go bare?
Sam Gibbs: Certainly. For about 50 million Americans who don’t have health insurance, they understand this first hand, what it means to be without health insurance. There’s a couple of issues here. First of all, the obvious is if you don’t have health insurance, then any type of health bill that you have, you have to pay for it yourself.
Those of us who had some medical issues, maybe something as simple as a broken arm, you can go to the emergency room and have a complication, and have a few x‑rays, an MRI and its $10,000. So the real problem of not having health insurance is that if you don’t have health insurance, you have to pay the list price for those services. That’s why it’s so expensive for folks without insurance.
The good news for people who do have insurance is, that even if you have a high deductible plan ‑ we can talk about that a little later ‑ but, you do get the discount that the health insurance carriers have negotiated with the doctors in the hospital. So, that’s why its extremely important to have some kind of medical insurance available to you, so that you don’t have to pay list price for all your medical bills.
Anita Campbell: OK. I know we’re going to get back to that because I’ve got several questions about that particular aspect myself. But, what’s this about the tax benefits, or lack thereof, or somewhere in between as they relate to small business owners and the self employed?
First of all, if you’re self employed, can you deduct from your income tax health insurance premiums?
Sam Gibbs: Yes. The answer to that is yes. In fact, one of the major benefits of offering a health insurance program if you are a small business owner or self‑employed, is that the premium dollars that you spend on health care is tax deductible. And for your employees, those benefits are not taxed. So, its really double tax advantaged. That’s something that’s been around for years and years. It’s one of the ways to help afford the premiums is the fact that they’re tax deductible.
Anita Campbell: Just talking about the self‑employed, let’s assume that you’re just dealing with your own situation and that of your family. What one thing that I do think we need to make clear is while the premiums are deductible for federal income tax purposes, there is still a portion of them that is taxed. I know that the small business groups have been trying to get that changed, and there’s even a bill pending in Congress relating to that.
Could you talk a little bit about that and what exactly is taxed versus what is deductible?
Sam Gibbs: Yes. So, we live in this great country with 50 different states, and there are some states that don’t have the same tax deduct ability for health insurance premiums and other types of deductions. So, even though on a federal level, most of these premiums are tax deductible, they’re not in every individual state. So, there’s a lot of issues around the health care debate about what to do with that tax deferred, or that tax favored treatment for some of those premiums. But you need to dig into the local state that you live in to find out what would be tax deductible.
Anita Campbell: There’s also the question, too, of the self‑employment tax being still imposed on the health insurance premiums for the self‑employed because of the way the deduction is taken, as compared with a corporation. So, even at the federal level, there’s that 15.3%. But still, if you can get it deducted off of your federal income tax, the straight income tax, that is a very substantial benefit.
Sam Gibbs: That’s right.
Anita Campbell: Let’s talk about how to cut costs with health insurance. Let’s assume that you’re a self‑employed person and you’ve decided you definitely want to make sure you’re covered. You’re not willing to risk going bare, or going without any kind of insurance. How do you approach the whole health insurance thing to try to find the best deals possible?
Sam Gibbs: Health insurance is regulated state by state. Every state has different laws and regulations around health insurance. Then, within a state, you have choices from a lot of different health insurance carriers. Some of these carriers are brands that you recognize like Blue Cross Blue Shield, United, Aetna and folks like that.
So, the first thing to do if you’re shopping for health insurance, especially if you’re a really small business, is to make sure that you get quotes from multiple carriers. And I know that’s difficult and I certainly had to do that when I had my business. It’s difficult to get a local agent, or broker sometimes to call you back, or the health company for that matter. But, be diligent. Use the Internet to find the different carriers and then shop around. You’d be surprised at different prices that each carrier charges.
The other thing is the carriers change their prices generally three or four times a year. So, it always makes sense to shop around and get quotes from various carriers.
The other advice is if you have a smaller business, is that if you’re going to buy a small group insurance product, then generally whatever product that you decide on as the business owner, every employee in the company generally is going to have that type of plan. So, I think its really important to communicate with your employees and find out what their needs are.
You may find that people are comfortable with a higher deductible plan. They may be interested in health savings accounts, and a health savings account is really a high deductible plan. But it has with it really a savings account if you will, where you can put pretax dollars in to pay for incidentals like office co‑pays and things.
And then a prescription drug plan. You can get a health insurance plan with or without that. Even though it may sound scary not to have a prescription drug plan, there’s some alternatives available. Wal‑Mart has a four dollar prescription drug program where they claim that 95% of all drugs that are issued are under that program.
So again if you arm yourself with some information and find out what’s comfortable, you know, the type of plan that you and your employees are comfortable with, then you can shop around and really only buy the insurance that you need. I mean, especially as a small business and especially with times as tight as they are, don’t pay for any extra benefits that none of your employees are going to use. You’re just wasting money at that point.
Anita Campbell: I want to talk a little bit about COBRA and the COBRA subsidy rules that we’ve been hearing about. And of course I’m not talking about some big, scary snake, I’m talking about a federal law. So what is COBRA and what is this COBRA subsidy we’ve been hearing a lot about, Sam?
Sam Gibbs: Yes, COBRA comes from a law that has been around for a decade or so now. The basic law says that if you have 20 or more employees, that if that employee leaves the company for whatever reason, voluntarily or involuntarily, that you as the business have to offer a continuation of the health insurance that you have with your business.
So what that means is that let’s say it’s a family of four and this person is leaving and their premium was $1,000 a month. So what the federal government has passed in the beginning of the year is a subsidy. So what the government’s going to do is to pay $650 of that premium for nine months, so that the employee only has to pay $350 per month.
And so it’s one way to help people stay on health insurance plans by basically forcing small businesses and even large businesses for that matter to offer this COBRA. So that’s the essence of what COBRA is and the COBRA subsidy.
But one of the things that we found in the industry is that those COBRA premiums are fairly expensive. In fact, on average in the country, a family of four will pay $800 a month for a premium. So that’s fairly expensive. We also recommend that, especially as employees are leaving a company, that they also check the private market, the individual family market.
A lot of times they can find a plan that may have a little higher deductible and it may not have as rich of a co‑payment for doctor’s visits. But let’s face it, if you don’t have an income you want basic coverage, that a lot of time employees can find that it’s cheaper to get their own policy from an individual family plan than it is even to get this subsidized COBRA.
So the message here is that the subsidy is great, it’s a way for employees to continue to get coverage, but there’s also alternatives to that if people were to do the research.
Anita Campbell: Are there any particular carriers that are good ones for the self employed to approach for coverage? Or ones alternatively that you should stay away from? Or doesn’t it break down that way?
Sam Gibbs: Well, I mean, the carriers are really state by state. But I think the really good news over the last five or six years, is that a lot of the large, major, large group carriers have gotten into the individual family and self employed space. So companies like United Healthcare and Aetna, now have these products available whereas as little as five or six years ago they didn’t have those products. So those are brands that you can trust. These are really large carriers.
One of the most important things to look for when you do shop for a carrier is their financial stability. There’s an independent agency, a good housekeeping if you will, called A.M. Best and they rate carriers. They’re primarily looking at the financial well being of these carriers. You generally want to buy a product from a carrier that’s an A.M. Best B, B+ or higher rated. It goes B, B+, A, etc.
What that’s going to show is that the carrier is financially stable. Because really what you want to avoid is if you find a premium and it looks really good and it’s inexpensive and it’s from maybe a local or regional carrier that you’re not familiar with. Well, sometimes too good to be true turns out to be that way. So the best way to protect yourself there is to make sure you buy a product from a financially sound company.
Anita Campbell: So eHealthInsurance.com, what is that site? I mean, are you an insurance agent or insurance broker or what are you and how does going on eHealthInsurance.com compare with calling your local insurance agent?
Sam Gibbs: Yes. So there’s really a couple ways to shop for health insurance if you’re a small business owner, self employed. The first way is to figure out what carrier you would like and contact them directly, or work with a local agent or broker, or work with an online company like eHealthInsurance. And there’s pros and cons to both. Certainly a local agent or broker is potentially someone that you could go meet and half a cup of coffee with and they could talk about your particular needs in person.
What eHealthInsurance does is that we’re basically an Expedia or Travelocity, if you will, for health insurance. So what we’re going to do is to find as many health insurance carriers and plans that are available in the market and display them on our website and have them available to our licensed agents that are on the phone.
So what we’re offering is really a breadth of a product line so that you can compare and choose different plans. And you can talk to one of our licensed agents and find the plan that’s right for you. Certainly any different type of distribution channel that you’re comfortable with you should work with.
My caveat would be there to make sure you work with a licensed agent or broker. People know health insurance products are not all the same and sometimes they use complicated terms that you may not know. By working with a licensed agent or broker, they’re licensed by the Department of Insurance from the state you’re in so you know that they’re qualified. So by working with a licensed agent or working with us online can make sure that you get a quality product.
Steve Rucinski: Well, Sam, I know when shopping for insurance there’s a lot of things to think about. One of those decision points is deductible size. Is there an advantage or disadvantage to a higher or lower deductible that ought to be considered?
Sam Gibbs: Yes, and I think it’s obvious to most folks. Your auto insurance is a great example. Generally, the higher the deductible you have, the lower the premium is going to be.
So that same thing holds true in health insurance. So if you’re looking to save money in your premiums, you can look at getting a higher deductible plan, which will be lower cost in premiums.
But, as you start to look at higher deductible plans, perhaps it’s a good opportunity to also consider an HSA eligible plan. HSA’s are health savings account plans. What an HSA is, basically, is like a 401k plan for your health care needs, if you will.
And so basically, you can put pre‑tax dollars into this HSA account, and then, if you have a higher deductible health plan, which is required with these, you use the funds that are in this health savings account to pay your deductible levels or other types of medical bills that you would have up until your health insurance kicks in.
Another good feature of these HSA’s is any dollars you put in there roll over from year to year. In fact, once you reach 65, you can use it as a supplemental retirement account.
So long answer, but yes, a higher deductible plan. There are some advantages, and if you couple that with an HSA, I think you can find a really good benefit that you can put together for your employees or yourself.
Steve Rucinski: Another question to follow up on HSA’s: Who sets up the HSA? Does that happen through an insurance company, or how does that get structured?
Sam Gibbs: Yes,that’s right. Health savings accounts are basically bank accounts, and most of the major banks in the country today, as well as a lot of regional banks and even credit unions today, offer health savings accounts, and so they’re fairly easy to set up.
A lot of these banks will allow you to do it online so these are independent from your health insurance but they need each other to work together.
Check with your bank that you currently bank with and see if they have a health savings account. If not, on our website, the eHealthInsurance website, we will offer you six or seven different banks where you can compare the rates you get from them, so they’re fairly easy to get. They’re fairly common.
Steve Rucinski: OK, great. Thanks. I know I’ve had to deal with this in different insurance: What if I, or a member of my family, has a pre‑existing condition? Does that make it. . .I am sure that must impact the ability to get health insurance in some manner.
Sam Gibbs: Yes, it certainly does. In the majority of states, people who have small businesses and are applying for individual and family insurance, each of those applications to that insurance company, if you will, are individually underwritten. Which means that the health insurance company is going to look at your health history, and in most states they can change your rates.
But a lot of times they can deny you for coverage, and there’s about six or seven states that are called guaranteed issue that that’s not the case. But in the majority of the states, that’s the case.
But all is not lost if you do have some type of a medical condition. There are a lot of programs that are available from state programs to federal programs. States generally have what are called ‘high risk pools’ for people who have chronic conditions.
President Obama earlier in this year expanded what’s called S‑Chip which is a children’s program. So, depending especially if you’re just starting your business and you have virtually no income, you may be eligible for Medicaid and other types of things.
There’s a great website, it’s called CoverageForAll.org and what it does, is it basically has put together all of the programs for people who have these types of conditions on one website. You can go search from there and they offer links, and they have a call center, and they provide help.
So all is not lost if you can’t find insurance in the private market. There are a lot of places to go where you can find some coverage.
Steve Rucinski: CoverageForAll, is for spelled out, f‑o‑r?
Sam Gibbs: Yes, coverage f‑o‑r all dot org.
Steve Rucinski: Great. That’s a great tip.
If I’m shopping online for health insurance and I’m sure there’s different forms and things to do, how do I ensure I can protect my private information?
Sam Gibbs: Yes, this is a big one. Fortunately, if you work with a licensed agent or broker, and a licensed agent or broker is someone who has a current license from the state that you’re operating in, then as part of that licensing you are required to protect people’s private information.
In fact, there’s specific laws on how long you can keep that information and then you’re required to get rid of it after a while.
So it’s very important if you’re working online or offline or anywhere that you ask the person are they licensed for the state that you’re working in and you know that if you’re working with one of those folks that the protections are in place.
Steve Rucinski: OK, great. Thanks. Can you give us any ballpark on what an owner or a self employed person might pay for health insurance?
Sam Gibbs: Yes, sure. Let me pull up a few examples here.
Let’s first go to Houston, TX and let’s first start with a family quote, two family, parents are in their mid 30’s kids are, say 10 and 12, for a $225 deductible plan you’re looking at $324 a month, and that’s a very reasonable price. In fact, for a similar plan for an individual it’s as low as $85 a month.
If we go to Minneapolis, Minnesota, same kind of thing; parents in their mid 30’s, two kids, it’s about $475 a month for the family and an individual $135.
So as you can see, it changes from state to state but these prices are very affordable. These are with Blue Cross/Blue Shield of Texas and Health Partners for those of you in Minneapolis. Very well respected brand up there.
So the message here is that you can find good prices, you need to shop around and play around with the deductible levels and you can find a price. I think most people would be surprised at how affordable it is.
Steve Rucinski: What makes the variability between location? Is there minimum things or is it pure demographics or like you say Minneapolis gap?
Sam Gibbs: Yes. Why is that?
Every state has a department of insurance and then each state regulates the type of plan benefits that they mandate, that each plan have.
So if I’m a carrier and I’m designing a plan in Minnesota, then I may have to include, and I’m going to make this up because I don’t know exactly what it is, but they may include a mental health benefit. Well, Texas may not require that.
So you get variant prices because each of the states mandate different minimal levels of coverage and so that changes from state to state.
In fact, if you go to New York state, they have what’s called guaranteed issue which means there’s no medical underwriting and everybody is guaranteed to get coverage and you may find that you may pay $1, 000 to $2, 000 for that same type of coverage.
So every state is somewhat different and the reason they are different is that every state mandates different benefit levels.
Steve Rucinski: A different mix of coverages, OK, that makes sense.
Sam Gibbs: Yes, that’s right.
Steve Rucinski: What advice would you have for small business owners regarding employees they may have, in providing insurance or choosing insurance?
Sam Gibbs: Well, every small employer has a company and it has different needs. Some types of businesses may have a little older workers. Some types of businesses may have really young folks.
I think it’s important for that small business owner to just be open with their employees, talk about what their health insurance needs are, and then once you get a general idea of what coverage you need to meet your employees, then try to find a plan that’s affordable that meets the needs.
But inevitably what’s going to happen, and this is happening all over the country, is that those premiums are more and more expensive these days and then you’re going to have to decide on which benefits. Yes, we’d like to have this but, it’s not all that important.
So, I think for small business owner, it’s very important to provide open communication.
Make sure your employees are included in the process because inevitably what’s going to happen is each employee is going to have to pay more and get less than what they think. So having them be part of the process is going to make that as painless as possible.
Steve Rucinski: Great advice. Sam where can people find out more about your organization on the web?
Sam Gibbs: Yes, we are located at www.eHealthInsurance.com.
Anita Campgell: Well, thank you so much. Sam Gibbs, Senior Vice President of eHealthInsurance. We really appreciate you joining us today and sharing your expertise.
Sam Gibbs: Yes, thank you very much. I really enjoyed spending the time with you guys.
Anita Campbell: Well, you have just heard another in depth entrepreneurial interview on Small Business Trends Radio. I want to thank you very, very much for listening today. So until next week, I’m your host, Anita Campbell.
Steve Rucinski: And I’m Steve Rucinski and that’s a wrap.
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Small Business Trends LLC, 2009
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