Medical Insurance Strategies for Freelance Journalists and Others
Medical Insurance for Writers and Other Small Business Owners
One of the perceived disadvantages of being self employed, as opposed to working for a large employer, is the lack of employer paid medical coverage. Among the first things that come to the mind of a freelance journalist or other self employed person when thinking about finances is what do I do for medical insurance? Or, as in the the case of this HubPages Request, Are there any health care plans specifically for freelance journalists?
The short answer to this is a simple, YES. The Author's Guild and the National Writer's Union, both of which are national professional organizations for journalists and writers, are but two that offer some medical and other benefits to their members. There are also a number of other professional organizations, local and national, that provide low cost medical insurance plans. Going beyond organizations for writers and journalists, there are many small business organizations (Small Business Associations, Chambers of Commerce, etc.) that offer similar discounted insurance plans as well as other organizations such as alumni associations, buying clubs, some credit unions, etc. many of which offer medical insurance plans as part of their member benefits.
You can also investigate buying medical insurance directly rather than paying to join an organization in order to purchase medical insurance through them. Do this by searching medical insurance on the Internet or through an insurance agent who sells medical insurance provided by a number of different insurance companies.
Focus on Managing Your Risk rather than Avoiding Medical Expenses
Before buying medical insurance, you should take time to analyze your medical insurance needs. Most medical plans offered by large employers are basically pre-paid medical plans that cover all or most medical expenses with little or no out of pocket cost to the insured. These are great, especially if your employer pays for the plan. However, they are expensive and employers are increasingly shifting more and more of the expense to the employee. Many, like my employer, offer a basic plan with co-pays of $20 to $30 or more for doctor visits, and the employer pays the full cost of the plan. They also offer other plans, with little or no co-pays for doctor visits but the employee has to pay part of the cost of the insurance. Most employers now make the employee pay all or most of the cost of insuring family members that are added to the employee's plan.
The fact is, most people are basically healthy and, if they would take time to compare how frequently they have to seek medical attention for routine and unexpected medical situations to what they pay for insurance, they would quickly discover that they would be much better off by reducing their medical coverage and paying more of their medical expenses out of their own pockets. It is nice when your child gets sick unexpectedly and you take him or her to the doctor and end up paying a $5 or $10 co-pay on your way out of the clinic. Or, when you pursue your favorite weekend sport too aggressively and end up with a torn ligament or broken bone and can walk out of the Urgent Care or Emergency Room following treatment without having to pay and knowing that your insurance plan will cover the cost. But how often do you encounter these situations? And, more importantly, is it worth it to pay an extra $300 or more per month in insurance premiums simply to avoid a higher bill on your occasional visits to a clinic for medical services? Ask yourself, do you want, or need, a plan that pays all or almost all of the cost of occasional medical care, or would you be better off with a much less expensive plan that simply puts a cap on the maximum amount you can be charged for the occasional medical services that you require? This is the difference between today's pre-paid medical plans that pay all or nearly all of your medical expenses and medical insurance that pays your medical bills after they pass a certain pre-determined point. With pre-paid plans you incur a large monthly insurance bill in order to avoid the possibility of having to pay a little for unexpected medical situations. In contrast, with regular medical insurance you have the the opportunity to pay a much smaller monthly insurance amount to limit how much you will have to pay when the need for medical services does arise.
Regardless of whether you are a freelance journalist, other small business person, work for an employer that doesn't offer a medical plan or work for a large employer that provides medical coverage for you but makes you pay the cost of adding your family to the plan, it is wise to analyze your risk and shop for an insurance plan that covers only the portion of the medical expense risk you are uncomfortable assuming. Both my wife and I have plans for which we pay nothing and have small co-pays when we need medical attention. However, the cost of adding our children to either one of the plans is over $400 per month. Like us, our 3 collage age children rarely have need to seek medical attention. Rather than having an extra $400+ taken from my wife's or my pay each month for insurance for the children, I simply called my insurance agent and purchased a separate policy for each child. My total monthly cost for the three plans is $176. There is a $2,500 deductible on each plan and the co-pay for doctor visits is $40.
Now there is a risk that one or more of my children will have an accident or medical problem that requires expensive medical attention and I could be suddenly faced with up to $7,500 ($2,500 for each of 3 children if all of them require expensive medical services at the same time) worth of medical expenses. However, the small probability of that happening has to be compared to the fact that my monthly savings on insurance expense accumulates to $7,500 in slightly over two years. If the worst case scenario occurs, I can recover it in two years with the savings on insurance premiums - if it doesn't occur, I can almost fund my IRA account each year with the savings on medical insurance.
People's Tolerance for Risk Varies
Obviously, there is no one size fits all strategy that everyone can follow. Each individual or family's health care situation is different and all of us face, with varying degrees of probability, the threat of an illness or accident that results in astronomical costs. Probability implies chance and can only tell us that, out of a given population sharing similar characteristics, a certain percent will fall victim to a, in this case medical, situation that will result in huge costs. This, of course, is the worst case scenario (although it is the one that politicians and media types focus on exclusively). While the probability of the worst case scenario occurring varies among populations - with it being high for some and very low for others - it is impossible to predict whether or not the scenario will occur for a specific individual or family. For most of us the probability of experiencing the worst case scenario is low.
In dealing with the risk of financial disaster resulting from medical problems we have two choices. The first is to simply gamble that we will be a part of the segment of our population group that is lucky enough to avoid expensive medical situations (studies have shown that many of the 30 odd percent of American households that lack medical coverage have elected to save money and gamble in this manner rather than obtaining medical coverage). The second is to decide how much of the financial risk we want to assume ourselves and then use insurance to protect us from the remainder of the risk.
If you want near zero risk, you can purchase very expensive HMO (Health Maintenance Organization) type medical coverage and either eliminate medical service costs totally or keep them to some small amount such as $5 to $10 per occurrence In this scenario one has eliminated the risk of medical expense, but at the cost of a very high monthly insurance premium. While very expensive, this may be good, especially for those who have a difficult time managing and saving money and/or tend to worry excessively about money. The easiest way to handle this is to arrange to have the money for the insurance premium automatically deducted from the same checking account where your paycheck is deposited each payday (which can also be done automatically) and if you arrange for the monthly withdrawal to occur on the same day as you get paid the cost simply becomes another item withheld from you pay and, after a couple of months, you mentally adjust to the new lower net pay and essentially forget about the cost of the medical plan. While generally not wise from a money management point of view, for certain risk averse individuals the peace of mind resulting from the plan could more than justify the high cost.
For those who are willing to assume some financial risk, high deductible insurance is the answer. The cost to an insurance company for processing a claim for a $100 doctor visit and a million dollar hospital stay is about the same. Since there are far more $100 doctor visits than million dollar hospital stays, the insurance company can realize considerable savings by avoiding small claims. Thus, the higher the deductible (the amount that you have to pay before the insurance company has to pay) on your policy the less likely are the odds that the insurance company will have to pay anything on your behalf. Here you are assuming part of the risk of incurring medical costs but setting an upper limit on the amount you have to pay. There is no guaranty that you will have to pay anything beyond the cost of the insurance since, if you don't incur any medical expenses you won't have to pay any of the deductible while if you do incur expenses there will be an upper limit as to what you will have to pay. Of course it is a good idea to use the savings on the premiums for the high deductible insurance to start an emergency fund to cover your expenses in the event of an emergency.
Be warned that the deductible may be for the family per year in which case you only need to bank the amount of the deductible or it may be per family member per year or per member per occurrence. If it is the latter two cases you will need to bank a multiple of the deductible amount in order to have full protection. If you feel that you are uncomfortable with the level of personal financial risk from a particular policy, select a different policy with a lower deductible and/or less stringent rules on the application of the deductible.
Develop a Tiered Approach to Managing Health Care Expense Risk
Here are some additional strategies for managing risk and keeping insurance premiums low. If you have no emergency savings, you can always start out with a low deductible ($250, $500, etc.) that is per year rather than per occurrence. This will still be less expensive than a no deductible or HMO type plan. You can then bank the savings on each month's insurance premium and, if your out of pocket expenses are low as planned, you should be able to increase your deductible and monthly premium savings when you renew the policy at the end of the year. Another way, if you are confident that your out of pocket costs will be low and are comfortable with assuming more risk, is to look for other ways to cover your risk in the remote possibility that you do incur expenses that approach or exceed your high deductible. Remember, you are seeking ways to cover expenses for which there is a low probability of their occurring - if there are expenses that you expect to incur such as a planned pregnancy, birth due the next year, a child you are going to adopt, medical treatment for a non-critical condition that must be attended to in the near future, etc. make sure you have these covered with savings or sufficient insurance coverage. For the unknown which may or may not happen, you can look to unused credit lines on your credit cards or home equity loans, cash value in life insurance policies or loans or withdrawals from your retirement accounts. All of these will result in increased costs to you and are certainly not recommended as the primary way to deal with anticipated medical expenses. Instead, they are a third line of defense to use in the event that the unexpected happens, despite the low probability of it happening, and that your current cash on hand (first line of defense) and emergency savings (second line of defense) are not sufficient to cover the expense.
In addition to simply putting money aside to cover the deductibles on your high deductible medical insurance policy, recent legislation also offers, to those who qualify under IRS rules, the opportunity to open what is known as a Health Savings Account or HSA policy. HSAs are special, high deductible policies designed to work in conjunction with an investment account. Qualifying individuals purchase a high deductible individual or family medical policy from an insurance company and then open a health savings account with a bank or other financial institution and make periodic deposits (up to an IRS specified maximum each year) to the health savings account. When a medical expense arises the individual can either pay it out of current income or other savings or withdraw the funds from the health savings account to pay the medical expense. Like a traditional IRA (Individual Retirement Account) money deposited in a health savings account is deducted from income for income tax purposes and earnings from the account are not subject to income taxes. Funds in the account roll from one year to the next so there is no need to use up the money each year. Any funds still in the health savings account when you retire and qualify for Medicare can be rolled into an IRA account and used as retirement income.
I know that I have provided more information than originally requested. However, people have become so used to gold plated employer paid medical coverage and so frightened by politician and media driven scare stories about worst case medical situations that drive people to bankruptcy, that they look at medical expenses as something to be avoided at all cost rather than as one of life's normal risks that can be managed. As a result, people end up spending large sums of money to insure against having to pay occasional medical expenses which, for most households are usually less than they spend each week on groceries.
Links to My Other Hubs on Insurance
- Term Life Insurance Explained
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- Funding a College Education with Life Insurance
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- Including Health in Retirement Planning
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