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The Self-Employed and Health Reform

By Meredith Ledford on December 31st, 2009
Health Insurance

Affordable health insurance coverage is one of the biggest barriers to self-employment. Purchasing an individual health insurance policy is often very expensive and provides limited coverage. As a sole proprietor, you take on all of the risks and costs of health insurance coverage for yourself and possibly your family.

The Current System and Health Insurance for the Self-Employed

It's difficult to find affordable health insurance coverage as an individual, but the search can be even more difficult if you are self-employed. After comparing quotes, you may find coverage but you may feel that you are paying too much for it.

Those that are in good health often take a gamble and bet on remaining healthy and forgoing health insurance coverage all together. Others choose a high deductible plan, which typically covers catastrophic illnesses and emergencies, but doesn't cover preventive care.

Those who are chronically ill or have a pre-existing condition may have trouble getting coverage, and might be forced to abandon dreams of entrepreneurship in search of a job that provides quality group health insurance coverage.

If you are fortunate enough to remain self-employed and acquire health coverage, you are likely to pay more than an individual who has coverage through his or her employer. For example, a self-employed business owner paying $7,000 annually for health insurance also pays $1,071 in extra self-employment taxes. This additional tax is a result of being unable to deduct their health costs as a business expense on income tax returns.

However, current health reform efforts may alleviate some of the burden associated with health insurance for the self-employed.

Health Reform and Health Insurance for the Self-Employed

Current health insurance reform efforts may make entrepreneurship easier. The health care bill in Congress provides minimal cost savings for the self-employed. However, an amendment has been introduced that would allow the self-employed to deduct 50% of health premium costs as a business expense. This would put you on more equitable footing with large companies that are able to deduct their portion of health insurance premiums on tax returns.

Another glimmer of relief for you as a sole proprietor is the proposal for health insurance exchanges. The exchanges would allow small business, including the self-employed, to acquire group health insurance through your state's health insurance exchange, or health insurance marketplace. This would allow you to benefit from all the aspects of group insurance, where the risk is shared and the cost of health coverage is reasonable.

It looks like health reform may address the main barrier preventing you from striking-out on your own. Be sure to compare health insurance plans and obtain various quotes so you'll be ready when reform happens.


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