Notes From a Hired Pen

Reader Q: What do you do about health insurance?

Today’s question comes from Ben Garvey, general nice guy and creator of this game. And it’s one that every potential freelancer needs to consider before quitting their traditional job: health insurance.

If you cannot afford health insurance, you cannot afford to freelance.

The only exceptions to this rule are if you have enough cash on hand to pay medical treatments of the following:

1. Broken leg, requiring casting, a wheel chair and physical therapy.
2. Car accident and the multiple injuries that follow.
4. Mystery illness that requires multiple tests and doctor’s visits.
5. Cancer, including all drugs required for treatment.

Got that much money on hand? I didn’t think so. The cost of paying for any of the above could send you into bankruptcy if you are uninsured.

It is not worth the risk. You cannot go without health insurance. It’s expensive, but necessary.

Here’s what you can do:

1. Go to healthcare.gov. This is the federal government’s site, and it explains everything you need to know about insurance. Study the site. Make notes. Insurance can be expensive, but this site helps.

2. Compare plans. Before I started dating a guy who worked in health insurance, I priced policies through ehealthinsurance.com. It shows you what’s available in your state. You can do side by side comparisons. My suggestions is to then go directly to the provider whose policy you’d like to buy instead of through the website. You’ll avoid any additional fees that way.

3. Figure out what works for you. If you rarely see the doctor and want to keep your premiums as low as possible, look into a catastrophic health insurance policy. This kind of insurance helps you when the shit hits the fan. These plans have a high deductible, so you’ll pay for most things out of pocket, but if something really goes wrong i.e. you’re hit by a car, you’re covered. If you see a specialist often, make sure he or she is covered in that network. Do you require mental health services or want the option to see someone if you need to? Make sure that’s covered. Ditto for pregnancy if you think you might want to start a family. I sometimes need to see specialists, and I prefer being able to chose doctors without a referral so I have a PPO plan. It has a high-ish deductible, but I keep that much extra money in my emergency savings in case I need it.

4. Track everything so you can deduct costs from your taxes. If your health and dental care costs come to more than 10% of your adjusted gross income (UPDATE: see note below), you can deduct them from your taxes. So record everything, and not just what you pay in premiums and co-pays. You can deduct expenses like gas mileage and tolls that you pay to get to and from the doctor. This only applies if you take itemized deduction on Form 1040, Schedule A, which you should if you freelance.

Because of the Affordable Care Act, health insurance is changing. As of August 1, many women’s services are now free (with a few big loopholes, which I wrote about here, but these won’t apply to you if you’re buying your own insurance). Future changes are outlined here. I live in New Jersey, which is a fair coverage state, so I’ve never had to deal with being rejected from a plan because of pre-existing conditions. If you have one, make sure to read that PDF. It explains how you’ll be helped in the future.

I know that insurance is expensive but you just can’t go without it. Even when I was making next to nothing, I still paid my premiums on time. I went without cable, didn’t eat out, and bought crappy beer for years so I could afford it. I’m glad I did because I’ve dealt with some scary medical crap since then. You must make room in your budget for it before you take the freelance leap – that or save up a year’s worth of premiums in addition to the cash cushion you build before going freelance.

If you’ve been forced into freelancing and have been doing without, look hard at your expenses and see what you can cut to afford it. The risk to your personal health (i.e. putting off doctor visits) and financial help (risk of bankruptcy) is severe without it.

I suggest disability insurance, too, but that’s for another post.

This also assumes, of course, that you’re not getting health insurance through your spouse’s employer. Some have suggested that my boyfriend and I get married so I can go on his insurance. That’s a terrible reason to get married. But if you can go under your partner’s insurance, have him or her contact HR and see when you can be added, and how much more that will cost.

UPDATE

This post is getting a lot of attention – and comments at Y Combinator. Thanks guys! I’m glad you are finding it useful. Two clarifications based on some comments.

1. I wrote this for people who are considering the jump from full time employment – with benefits – to freelance because that’s who most often asks me the question. The case is obviously different if freelance because you can’t find work though, as I said above, I stress still the importance of finding a way to pay for health insurance.

2. The tax information was drawn from Kelly Phillips Erb’s wonderful tax blog at Forbes. If I interpreted this incorrectly for the self employed, I apologize. This is also why I pay an accountant a lot of money. Either way, the point is the same: record. Every. Medical. Cost.

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