Health & Dental Insurance for Entrepreneurs with Kids

Health Insurance

One of the biggest barriers to walking away from a 9-to-5 is the belief (and at times reality) that purchasing an individual insurance plan will be cost-prohibitive.

If you have kids, you absolutely must get health insurance. In fact, the high deductible health plans are a no-brainer even if you are a single 20-something. Who wants to file for bankruptcy at 24, or ever? Plus, a high deductible plan gets you access to a beautiful investment vehicle that can become your entrepreneurial 401(k), the HSA account.

If you or your family members have major medical conditions or a significant medical history, an individual health insurance plan  may truly be out of the question (or impossible). In this case, you will want to negotiate for a part-time benefited position much like I did when I first left the corporate ladder.

However, if you and you family are generally healthy, purchasing your own insurance plans can be quite affordable (even cheaper than paying your portion through an employer) and liberating (because you are no beholden to a benefited position).

In planning to leave my safety net part time gig, I originally estimated that our new insurance costs would come in between $600-$700 a month. We are a young, healthy family, save for a couple chronic conditions that are easily and inexpensively treated. After many, many hours of research and scouring the internet for the best plans, we are now insured for just $203 per month. Here’s what we found:

Health Insurance:

There are several online individual health insurance plan search tools, but I found healthcompare.com to be the most useful and host the best options. You simply enter your zip code and basic family information to get instant quotes.

Interesting notes and tips:

  • Your quote is based on two primary factors: the age of the oldest person in your family and the number of people in your family.
  • There is a law in effect that doesn’t allow these health insurance search portals to advertise better deals than you could purchase direct. Once you find a quote that looks good to you, I advise applying directly through the insurance carrier to avoid adding your email to a variety of lists.
  • The customer service and integrity of your health insurance carrier is IMPORTANT. Do you really want to spend hours every day on the phone with Humana fighting for a claim to get paid? Do you want to speak to someone in the U.S. when you call? Look up reviews on the carrier you are interested in to avoid some nasty regret.
  • Due to recent health care reform laws, your preventative care is 100% covered BEFORE your deductible. This includes annual physicals, immunizations, and even birth control (even an expensive IUD).

I was fortunate to be able to remove my husband from the plan. After determining that our price would be based on his age (he is 5 years older than me) and realizing that he could get better healthcare through our local VA facility for free, it was a no-brainer. This alone saved us more than $70/month off original quotes.

That leaves me and our two kiddos, ages 8 and 3. I was already planning on purchasing a high deductible health plan, also called an HDHP, because we rarely go to the doctor and I wanted to keep overhead low without risking a medical bankruptcy. A plan is considered an HDHP if your deductible is at least $1200 for an individual plan or $2400 for a family plan.

We also have several high quality medical clinics nearby, for me this is namely Afterhours Medical, that have decent cash rates for urgent care visits. It’s important to research these and know ahead of time where to go.

At Afterhours Medical, you can be seen for a basic sick visit for a flat $119 or you can opt to pay around $25/person per month to get access to $10/visit prices. If we drive 20 minutes further, another medical clinic charges a flat $45 for urgent care visits.

There is some debate on whether you should purchase a PPO (a preferred provider organization) or an HMO (health maintenance organization). I originally leaned toward a PPO on the recommendation that they are more favorable for those who travel, providing coverage when you are out of network.

However, I found that the PPOs I reviewed had a deductible for in-network, say $10,000, and a separate, much higher deductible with coinsurance (you pay this percentage of the bill even AFTER you pay your deductible) for out-of-network coverage, a $14,000 deductible plus 20% coinsurance in one example. This means that I would have no limit to how much I could owe if we had a major medical emergency while traveling. No thanks.

I applied for an HDHP plan with a $10,000 bottom-line deductible HMO plan (it’s the same whether we are in-network or out-of-network, although if we are traveling in the U.S. we need to use their preferred providers if available) through SelectHealth (great reputation) and we were approved for the quoted price of $184 within 24 hours. The application took about 35 minutes online.

The HSA:

The added perk of an HDHP is the HSA, or Health Savings Account, which is touted as having a “triple tax-advantage”. Like the flex accounts you may have used through an employer, the overt purpose of an HSA is to sock money away to cover your medical expenses up to your deductible, since it’s a chunk of change, without paying taxes.

Just like your flex account, nearly any HSA provider will give you a debit card to pay such expenses and arrange for automatic withdrawals from your account to fund the HSA.

However, unlike a flex account, you don’t “use it or lose it” each year. Any savings in your HSA rolls over, every year, tax free. If you never use it up through medical expenses, you can pull it out at retirement age for non-medical expenses and pay only your current income tax rate on disbursements, just like a 401(k). You can of course still pull it out tax free for qualified medical expenses, including Medicare premiums and long term care insurance premiums.

In summary, the HSA is a triple threat because you get to contribute tax free, pay for qualified medical expenses tax free, and your investment earnings are tax free (as long as you pull out for qualified medical expenses). The maximum amount you can contribute to your HSA each year is $3,250 for individuals and $6,450 for families, as of 2013.

Keep in mind that not all HSA providers are the same. If you go through your local bank or credit union, you may be competitive with a basic savings account interest rate, or worse. After you have your deductible saved up and if you aren’t near retirement, you are going to want to grow that nest egg, otherwise it would make no sense to tie up your money.

There are a variety of lists and forums that compare HSA providers and you should do some research before you make a selection. We have opted for Saturna due to a good offering of no-load mutual funds and their low or non-existent fees (no maintenance, contribution or distribution fees). HSABank was a close second due to their TD Ameritrade option, but we would rather dump our cash into a few time-tested mutual funds and be hands-off with as few fees as possible.

Dental Insurance: 

Surprisingly, figuring out dental coverage was much more difficult. Almost every individual health insurance plan you look to purchase will offer you a companion dental plan. With SelectHealth, this plan was more than $100/month and the coverage wasn’t amazing. Not bad, but I wanted to look around.

Dental insurance and dental savings plans can be a waste of money. For example, I was excited when I found a plan for $43/month through a reputable carrier, but upon closer inspection, I would be paying that $516/year and only preventative visits once per year would be covered. That’s $129 per visit, which is almost exactly the cash rate of seeing our current dentist. Many plans offer little to no coverage for fillings, extractions, crowns, root canals, etc. Also be wary of plans that have a maximum coverage limitation, often only $500 or $1000, which can be blown with just preventative care leaving you open to all of the costs of anything further.

After many hours of searching, I finally found Delta Dental. For $218/year (plus a $15 sign-up fee) preventative visits are just $30 a visit. An extraction is $40, a crown is just $325, and a typical filling is around $48. The one catch is that you have to select a single dentist for your entire family. However, that dentist can then refer your kids to a pediatric dentist in the network, which is what we will be doing.

We debated whether to just pay cash out of pocket for our dental care, especially because we love our kids’ pediatric dentist, but after obtaining cash rates the average preventative visit came to $141. Our total out of pocket during a good year (nothing beyond preventative visits) would be $1,130, compared to $458 with Delta Dental. On a hypothetical bad year, the difference was $2,874 compared to $959. I will note that Delta’s customer service is terrible. Hold time is 15 minutes on average and the folks you talk to aren’t terribly bright, but you get what you pay for.

We just got our benefit cards in the mail yesterday and the feeling of complete self-reliance was indescribable.

Good luck in your own quest for independent coverage! The waters are murky, but you and your family’s health (and wallet) is well worth your due diligence.

Note: I need to give some credit to a fellow blogger, Chris Cooper, who helped jumpstart my search by explaining much of the independent coverage jungle. Check out his post here.

  • Holly Johnson

    I am self-employed so we’ve been on my husband’s health insurance. However, he is starting a new job at the end of July and we won’t be eligible for his health insurance until Sept. 1. We had to buy a plan on the open market and I was surprised to find that it wasn’t that bad. I bought a similar plan to what we had before with a slightly higher deductible for $377 per month.

    • Jean

      I had a similar experience. I wanted to take a 6-month sabbatical from my traditional work to travel Europe and while my employer was willing to provide the benefits in the meantime if I paid for the entire premium, I actually found cheaper insurance online since I am healthy and in my late twenties. Peace of mind plus a little extra cash for croissants in France!

    • http://www.emilycapito.com/ Emily Capito

      Thank you for sharing, Holly and Jean! The actual costs are pretty amazing if you’re healthy. My most recent employer was paying well over $1000/month in premiums (60% passed on to me) for my health insurance, which while covering sick/urgent care with $30-60 copays, still had a $5000 deductible for major medical.

  • L. J.

    I am preparing to leave my employer in order to make my hobby my full-time gig and was simply planning on going uninsured for a bit. Thanks for the detailed info on the high deductible plans, I just pulled up a quote and coverage will be less than $100 just for me.

    • http://www.emilycapito.com/ Emily Capito

      How can you say no to less than a banjamin a month? Good luck with your exit from your 9-to-5, that’s exciting!