I've got a stupid question. When people quit their job and go solo like this, what do they do about health insurance? Do they just forgo it since their young and it's unlikely they will need it or are there affordable plans you can get when you don't have insurance through your employer? I've looked around the Internet but can only find vague information on the topic.
For example this http://www.ahipresearch.org/pdfs/2009IndividualMarketSurveyF... document seems to indicate that someone in their late 20's would pay just under $2,000 on "average" but the numbers seem to range wildly with location and some family plans going as high as 13k per year which seems ridiculous.
Edit: This thread though it contains helpful responses confirms my suspicion that getting non employer health coverage is a complete CF.
Not a stupid question. Most people COBRA. COBRA is expensive but, like a group plan, automatically accepts you. Since the overwhelming vast majority of indie startups fail, COBRA usually lasts long enough to bridge you to your next job.
After about a year or so, if you're not certain you're going to end up with a full-time job, you need to look for real insurance. COBRA will last for almost another year, but when it ends it ends, and god help you if you're hit by a car or diagnosed with something nasty towards the end of your COBRA coverage (nobody will insure you).
Coverage from the majors costs roughly $400/mo. It gets much cheaper if you choose a high-deductable plan (you should), in which case you pay for all your health care out of pocket. A family of four can expect to pay over $10k/yr for low-deductable insurance, which is what virtually all companies offer.
Now, choose your own adventure:
Are you ~22 years old, male, with no dependents, with no long-term health issues and no prior history of hospitalization for illness? You can easily buy high-deductable insurance on the open market. There are several websites that will sell it to you.
Otherwise: you may be screwed. If you don't qualify for a group plan of some sort (which is how most Americans obtain health coverage), you may find that you are uninsurable. For instance, in the first year of Matasano, we tried to get private insurance and found that both my daughter and my wife were uninsurable. My daughter had been hospitalized for a freak seizure when she was 4. Erin has a functioning female reproductive system. NO COVERAGE. Not, "we won't cover the things we don't like". No, NO COVERAGE. Every insurer. The list of conditions with "deny coverage" attached to them, which most insurers publish, includes a wide variety of conditions experienced by tens of millions of people.
I'm usually bearish about the realities of living in the UK but I've suddenly gained 1000 gratefulness points after reading this. Barring crazy gas prices and 20% VAT I don't pay much (if any) more in direct taxes here than I would in the US and I don't have to worry about paying a bean for my family's healthcare (except dental - out of choice).
Yeah pretty much this for NZ. I read that thinking "Man, I'm glad I don't have that risk for being self-employed". I also have private health insurance, but it costs me $11 a fortnight, so I get the best benefits of the public system AND private insurance for doctors visits and elective surgery.
For a limited period of time, they have the right to purchase health coverage at their employer's cost, which is invariably higher than what the employees themselves
Were accustomed to paying.
Plus their employers get to write that extra amount off as an expense, and the employee doesn't have to record it as compensation. This means corporations are subsidized over individuals. This is one of the things the Obama health plan does a good job of fixing.
Fortunately for those in California, any small business with two or more employees that's been around for 3-6 months (incorporate early) can get group coverage at fairly normal rates.
You just go to an insurance broker or provider, pick your plan, and you're all set up in a month or two. The employees do have to fill out medical questionnaires, but regardless of whether they are healthy 25-year-old men or they all have super-cancer, the outcome is a foregone conclusion -- "Approved, 1.10." That means your company pays the statutory maximum of 10% over the typical rates for larger groups.
Because, and of course only because, that's California law. Your company cannot be turned down even if none of your employees would ever qualify for personal coverage.
Yes, this is basically corporate welfare for the benefit of the employees. But it mostly overcomes the health insurance objection to starting a small business, so as far as I'm concerned it's fantastic.
There's an important part you neglected -- only people employed with your company for 6 months count, including founder(s). So if you found a startup, you have to wait 6 months to apply and pay COBRA in the interim.
In the end, we decided it was cheaper to go with individual plans until we grow bigger.
If your S-corp pays for health insurance for employees or dependents, that is an "above the line" deduction and is not subject to payroll taxes (although not outright deductable from income). See an accountant as these laws are changing the past couple years.
Yes, this is correct. It works just like federal COBRA, just longer.
BTW, the fact that I've had to learn all this stuff as part of starting a company is alone a draw on my time to innovate. Go with single-payer and you'd free up a ton of small company officers' time.
What is doubly ironic is that are income tax load (at least in BC) is identical to california before health insurance costs in california. If you add health insurance it's even more. And in BC tech companies get a lot of tax deductions, especially small businesses. The sales tax is about %4 higher, gas is about %25 higher, car insurance is more expensive-ish, food is a little bit more expensive and the shopping isn't as cheap. But that's all dwarfed by the health insurance costs in the US.
Which is odd. Given the social web that we have supporting us in Canada you would expect a much more vibrant entrepreneurial spirit.
Maybe the mindset that lauds and supports this type of support is one that is not willing to take the risks in the first place (at least, not in the same numbers).
The individual insurance market is not quite so bleak for _everyone_ in the US. Some US states, such as New York, New Jersey and Massachusetts, have "community rating" or "guaranteed issue" laws on the books.
It's complicated, of course. There are varying degrees of community rating, and these laws (particularly without a mandate for everyone to buy insurance) sometimes cause insurers to drop out of the market.
In the absence of a mandate, all state guaranteed issue laws do is jack up the cost of insurance for everyone. You simply can't have one without the other.
One of the reasons fairly wealthy people can't retire early is that a major medical event in their family could wipe them out financially. 65 is the standard retirement age in the U.S. for a very good reason - after 65, you are covered under Medicare. Even then, Medicare only covers 80%.
> Erin has a functioning female reproductive system.
Sorry, when you say that, do you mean they wouldn't insure her in case she got pregnant, or am I misreading something? That's shocking, and a stupid drain on being able to start a company.
It should be pointed out that the health insurance market varies by state. I know a woman who never had any problem buying health insurance in her 20s and 30s, but that was in Washington and Nevada, not Illinois.
We had cobra through my wife's former job. As others have noted, you can get cobra even if quit on your own.
Thankfully, the old job was in Maryland, where state law requires insurance companies to offer a continuation policy after cobra expires. It continues as long as you want it and make your payments, and they have offer you a similar policy in the state you move to if you leave Maryland.
We pay almost $1000/month for my wife and the kids to be covered. I have no health insurance at all. Because the policy is in my wife's name, it doesn't qualify as a sole proprietor business expense. (If it were in my name, it would count as a business expense as of 2010, even though it's not bought through the business.)
Because of preexisting conditions, we can only get private insurance that excludes most of the things likely to go wrong with my wife and kids. We're now in Florida where the state offers an HMO for children in low income families, but you can buy into it at full price if you don't qualify income-wise. Since the pricing is per-child not per-family, and our fourth is due in June, and we don't qualify for the discounts, the HMO isn't a useful option for us right now. (The 'and children' part of our current insurance is a comparatively small expense.)
For a number of couples I know, one is self-employed or in a small business, while the other works for an organization that provides group insurance. Whether Big Co., the school system, some other aspect of government. Often, the principal reason for the spouse's employment is the health care benefit. (For example, being a teacher's aid pays fairly little, but you get relatively quite good health care coverage.)
Before Matasano got group coverage in '06, that's how we handled it; Erin took a job in a school system. Erin works with us now, which is a much better state of affairs.
If you squint really hard, universal health care could be seen as pro-entrepreneurship, since it does away with this large barrier to working for a fledgeling company.
You don't have to squint even a little bit to see that. Almost any reasonable guaranteed issue health insurance plan would drastically assist entrepreneurship.
I say this every time this issue comes up on HN: in the first couple years of Matasano, one of the top 3 reasons candidates declined to work with us was health insurance.
There's even a term for this among the muggles in the mainstream media: "job-lock". It's very real. If you have a family, job lock is one of the major things keeping you from starting a company, or become a freelancer (a good first step towards entrepreneurship).
As mentioned "Job Lock" is a very real problem, but it's not as bad as
"Provider Lock" --being permanently locked into a particular insurance
and/or healthcare provider due to a pre-existing condition. In other
words, if you somehow lost your insurance, no one else would insure you.
Being locked into a health provider can be devastating in a number of
different ways.
I'm not sure those are even different issues; if you get seriously ill while on your BigCo Kaiser plan, you're stuck at BigCo; even Kaiser isn't going to cover you if you switch jobs (and thus plans).
You can pretty safely move jobs and group plans even when you have a pre-existing condition, provided there's no significant break in coverage. It's part of the "portability" portion of HIPAA.
Wow. I didn't know that. I yield all my comment's karma to the man whose comment is actually correct.
I think I missed this because portability doesn't guarantee issuance of individual (non-group) health insurance. It's a very good thing for people who change jobs, but not a very good thing for people who want to start companies.
You don't really have to squint very hard at all. Unless you have more than 10 or so employees it's almost impossible to get a group health plan. Young people don't worry about this as much as perhaps they should, but once you get to the age where most people you know have families, it becomes a huge barrier to starting a company.
Reading this thread is like having a nightmare.
Here in middle of Europe, individuals pay basically $50/mo. That covers everything needed at 95% private doctors and nearly 100% hospitals ... then you only pay for optional higher standards, other optional treatment/drugs, part of the prescribed drug costs and $1.5 per any private doctor treatment.
When you're employee, then insurance is paid by employer and based on a month sallary.
When you are self-employed then the cost is based on yearly taxes, but generally quite low.
Whem you are unemployed and registered, then the state pays the insurance.
It depends on your situation (age, health, dependents). Last startup I worked at did a high deductible health insurance and subsidized it with a $2000 Health Savings Account (deposits made with each paycheck on your behalf with pretax dollars). Done this way the HSA is like an FSA, but better. The HSA carries over from year to year, the FSA doesn't. If you had a big expense before the $2000 was fully deposited it could be lent by the company and paid back from paychecks. Since the company was already putting this in really what it what meant is that if you left the company before it was recovered from paychecks it would be deducted from the last paycheck. I don't remember the prescription coverage, but from what others said it wasn't bad. Some examples of the coverage:
Founder's son had a lung collapse and spent days in the hospital, but only paid 4K out of the HSA.
Co-worker had a preemie that spent a month in the hospital before they could take him home. Once again, $4K out of the HSA. High deductible covered the rest.
Another co-worker with a long term illness had $400/mo in prescription meds they needed. Covered.
Needless to say, they upped our rates the following year...
HSA's are a good thing, but when your COBRA plan expires, no matter how much you've banked in your HSA, they don't matter: a collapsed lung, complicated childbirth, or long-term illness will bankrupt you.
That's something that should be better normalized. Unfortunately, it varies sometimes based on the state and whether that coverage is required to be extended, but under a different plan.
I still think a single-payer system would be best for the economy overall. Decoupling healthcare coverage from employers should free up the market for people to switch jobs and take some risks that might otherwise be unthinkable. If the only thing keeping people working for a company is the healthcare, then maybe that company's practices actually have a negative net impact on the economy even though the balance sheets are in the black. Productivity, stress, and morale may actually be improved by a company with better work-life balance. It's worth considering the side-effects the structure of our society has beyond the highly visible numbers.
This is exactly right and many people would be surprised to find out exactly how much a hospital stay can cost. Our son was partially delivered when the OB moved the umbilical cord from his neck and it ruptured. Long story short, three days in the neonatal intensive care unit cost about $40k. We paid almost $5k out of pocket after the insurance and some hospital discounts were done covering the rest. The costs could have been significantly higher if there had been any further complications or treatment, we were lucky the three days were essentially just for observation.
Max contribution per individual per year to an HSA is $3050 currently. Assuming you did a good job investing and didn't lose money in this last market downturn, you might have saved like $15000 in the past 5 years. Remembering that your HD plan only covers 80% beyond your $5k deductible, this won't even last 2 years if you have a serious illness.
I don't see HSAs as an add-on to insurance (i.e., offers any kind of protection). I see them as a way of paying for meds, office visits, etc. with pretax dollars as long as you are healthy and continuing to work.
You're right, but the point of an HSA is to cover the cost of paying most low-to-medium-grade medical problems out of pocket, and to relegate health insurance back to its original role as insurance.
Also, you don't have to be good at investing to fully fund an HSA; the difference in cost between low- and high-deductable insurance is supposed to offset the cost of funding an HSA, and currently does do that.
This might help some folks under the age of 26 but it's pretty new so wouldn't have impacted people who went out on their own until fairly recently:
Under the Act, all plans and insurance issuers that offer dependent coverage must offer coverage to an enrollee’s adult children whether married or unmarried until the child reaches age 26, even if the adult child no longer lives with the parents, is not a dependent on a parent’s tax return or is no longer a student. (Plans that do not provide dependent coverage are not required to do so under the Act.) However, this extended eligibility does not apply to the adult child’s spouse or children. This expansion of eligibility is effective for plan or policy years beginning on or after September 23, 2010. Calendar year plans will have to comply as of January 1, 2011.
The last startup I did my cofounder did not have a job. (I still kept my job to help fund things). If I recall correctly he was able to get "oh shit, I have cancer" insurance for somewhere around $100/month. I think his deductible was $5,000 or some nonsense.
As a young guy I think this is a fairly reasonable amount of risk to take on. Although this would be basically impossible if you had some sort of preexisting condition. Unless you live in Europe or somewhere with universal healthcare.
The trouble with the "oh st I have cancer" insurance that only costs $100/mo with $5000 deductible is that it is for 6 mo at a time and then you get another policy for another 6 mo. When you try to collect on anything big, they recind the insurance retroactively (for some reason) or say it is a pre-existing condition. BTDT.
Examples:
http://abcnews.go.com/Business/Health/story?id=7911195&p...
This is a tricky point. I don't think you're always right. There are two different factors† you're bringing up: high vs. low deductable insurance and short-term health insurance.
High- vs. low- deductable isn't a charged issue. Only slightly oversimplified:
For high-deductable plans, you end up paying for doctor visits and basic meds out of pocket; for low-deductable insurance, you're basically paying a higher monthly fee to treat your medical care like a utility bill, and paying only copays for services. Most people have low-deductable plans (most company plans are low-deductable). Especially if you're young, low-deductable plans are kind of a rip-off. You can cut your payments in half with a high-deductable plan and use the difference to fund an HSA and thus not pay a huge premium for a health insurer to manage your money for you.
Short-term health insurance on the other hand is a bad idea. The reason you pay insurance is to manage the risk that something terrible will happen. Of the major medical events that can bankrupt you (in other words, "of the major medical events"), most can easily take several months to resolve. Not only does this expose you to huge fees when your insurance lapses and you (obviously) don't get re-insured, but you can also be assured of never getting private insurance again.
Don't buy short-term health insurance.
† Recission is an unrelated issue that affects all health insurance plans; no matter who you buy insurance from, if they can claim there was something you could have disclosed to them but didn't that would have allowed them to predict a medical event and no law prevents them from doing so, they will attempt to withdraw coverage.
I want to know about this insurance - that's exactly what I need. I am not one to needlessly run to the hospital - in fact I avoid it as much as I can - but I would like insurance in case I have a bad accident and need surgery etc.
The only plans I found were "free pills, and 10k max coverage" or something ridiculous like that. I need the opposite.
The site domain sounds like a spam dump, but their signup system is nice. You pick your policy plan online and then a representative calls you to confirm and interview you before signing you up and sending you the policy packet.
I was paying $198/month for my COBRA plan, but am now paying for $115/month for a high-deductible plan.
I quit my full time job last August. As a Type 1 Diabetic it's pretty important for me to not let my group coverage lapse.
I'm paying $491.00 /mo for Cobra (10% more than what my employer was paying for my coverage). Because I live in California I should be eligible for Cal-COBRA which extends my coverage to 36 months total.
It's expensive but worth it. Taking the plunge to go out on my own as a freelancer has been one of the best decisions of my life.
For the first 18 months, COBRA is available to keep getting the same coverage. Beyond that there are non-employer pools you can sign up for, and also organizations like the Freelancer's Union.
You should definitely be expecting to pay a lot of money, though. Because employer-provided health insurance is tax-deductible the overall cost that you and your employer pay is lower, so you'll get either lower prices or higher quality.
When I was self-employed in California, I used Kaiser Permanente. I paid around $200 a month as a single 32 year old. I used the coverage for a few checkups and whatnot, and thought it was good service and value. Buying my own plan through KP was about $150/m less than COBRA. The hitch with KP is that you have to use their hospitals. However if you are in California, that shouldn't be a problem.
While self-funding my company, I just paid for it myself. It was about $70/month (since raised to $100 after sex discrimination was banned) and with a $2900 deductible.
If you are fortunate to not have any preconditions and don't have a family you need to cover, getting your own health insurance shouldn't be that hard materially. It is pricier though than rates you'd get from an employer.
If you're healthy and single it's pretty easy. You just need a high-deductible plan for emergencies, which I found to be easy to get and not unreasonably expensive in my state (PA). A friend with a pregnant wife on the other hand had a lot more trouble; presumably the potential for childbirth catastrophe throws a wrench into insurability.
This point is more interesting and in the hn style than anything in the original article. Hn should have a easy way to spin comments into fp stories, as people that could probably talk a lot about health insurance can not be too interested in why some guy left google...
For example this http://www.ahipresearch.org/pdfs/2009IndividualMarketSurveyF... document seems to indicate that someone in their late 20's would pay just under $2,000 on "average" but the numbers seem to range wildly with location and some family plans going as high as 13k per year which seems ridiculous.
Edit: This thread though it contains helpful responses confirms my suspicion that getting non employer health coverage is a complete CF.