Health insurance for a contractor

[Math Is Hard]

I'm being recruited for a job that I think I would really enjoy. The only problem is that they will hire this person as an independent contractor first, until they have budget and HR approval to bring this person on board as a career employee.

The pay is good, but I worry about being able to afford health insurance. Does anyone else here work as an independent contractor and buy health/dental insurance? Is it insanely expensive?

Thanks.

 

[mheslep]

I used to some time ago. When considering a return to that life, I looked at the high deductible plans available, e.g. http://www.ehealthinsurance.com/ehi/Alliance?allid=Goo25151"under the HSA laws and got some very good rates for a family. They offered the exact same good quality policy and insurer that I use now working for BigCo. The problem of course is that the current tax law since WWII gives a break for employer based health insurance, so the employer based plans have a built in advantage.

I'd also look at the plans provided by some professional associations such as IEEE.

I don't know about preexisting conditions - I didn't have anything significant back in the day - but I've heard that may cause you some problems.

Finally, I understand these HSA plans are being blown away by the pending kick in of the US health plan in 2014.

 

[Evo]

It depends on how much coverage you want, and how much hassle you are willing to put up with. It can be around $150 per month to close to $1,000. Shop around.

Ask Russ, I think he has to get his own medical insurance. Of course you are in California which is akin to living in an alternate Universe, the IPU, bless it's holy hooves, only knows what flies in CA.

BTW, The Nom Nom truck won the second round by almost 200%.

 

[airborne18]

I'm being recruited for a job that I think I would really enjoy. The only problem is that they will hire this person as an independent contractor first, until they have budget and HR approval to bring this person on board as a career employee.

The pay is good, but I worry about being able to afford health insurance. Does anyone else here work as an independent contractor and buy health/dental insurance? Is it insanely expensive?

Thanks.

You get what you pay for, really. The problem is that you cannot get the type of plans that you are used to from your employer. Also, it was years ago when I had my consulting business, so do your own research. However, I found that the plans availabe through businesss organizations and other groups to be very poor plans.

What you can do is COBRA your existing plan, and that will buy you some time.

Do not let yourself be without coverage for more than 6 months, the laws concerning pre-existing conditions protects you for 6 months.

What you should do is call the Blue cross, or a reputable carrier in your state and ask them for rates. Your goal should not be to find comprehensive coverage like a ppo, but instead you want a plan that will cap your risk. You are paying for the max out of pocket, just like car insurance.

Before buying health insurance from a company you have never heard of, call their benefits claim line. See if you can actually ever talk to a person.

 

[russ_watters]

I used to work as an independent contractor. As a male in my 20s in good shape, I paid Aetna $125 a month.

 

[mheslep]

You get what you pay for, really. The problem is that you cannot get the type of plans that you are used to from your employer...

That's not true. The cost may be different in that the employer covers part, but the exact same BigCo - insurer plans, line for line, are obtainable for individuals, at least in some cases.

 

[Evo]

That's not true. The cost may be different in that the employer covers part, but the exact same BigCo - insurer plans, line for line, are obtainable for individuals, at least in some cases.

My health insurance has no deductible and I pay $20 to see the doctor and any tests ordered are free, doesn't matter if there are $10,000.00 worth of tests, and yes, I've come close to that for my $20. To pick up the payments for this under cobra, including vision and dental is $420 a month.

 

[airborne18]

That's not true. The cost may be different in that the employer covers part, but the exact same BigCo - insurer plans, line for line, are obtainable for individuals, at least in some cases.

In some cases. Thought it depends on the size of your company. If it were a smaller company, they probably offered a stock plan.


I could not get the same plans from Blue Cross that my company offered. Granted the plan my company offered was awesome.

Keep in mind that a lot of large companies do not buy stock plans. The company I worked for self-insured for the first 10,000 for each employee. I could Cobra the plan, but I could not come near the deductables and PPO features directly from Blue cross.

 

[Math Is Hard]

Thanks for the comments. I had looked at a COBRA plan when I was laid off about 12 years ago. I remember it was going to be about $330 a month so I passed, and hope to find a new gig with benefits quickly.

Luckily I don't have pre-existing conditions or need medications. My big fear is getting into an accident or having an appendicitis attack or something like that. I guess I will call the HMO I have now (HealthNet) and ask them what I could do if I were to take this new job. The pay increase is substantial enough that the insurance and tax headaches would probably be worth it. My tax guy mentioned something about being able to write off some of the insurance expenses since I would be self-employed, but he didn't have a lot of details on that.

 

[Math Is Hard]

BTW, The Nom Nom truck won the second round by almost 200%.

They sooo deserve it, too!

 

[airborne18]

Are you going to incorporate and go 1099? ( you can basically write off everything as a business expense. ). Incorporate in Nevada or Delaware.

And your car insurance covers your medical for a car accident.

 

[Evo]

I hadn't thought of it, but if you became a contractor, I guess you could do an LLC, it's cheap and quick, around $300 the last time I checked. You should check with your local Small Business association. California is a different animal.

 

[airborne18]

One of the big benefits is that you can setup a company pension plan and shelter 25% of your income..

300 is about right, and a wise investments.

 

[Evo]

MIH, don't forget to calculate that you'll need to make Social Security and Medicare payments. You said you've got an accountant, you should check with them to see if they can handle all of the tax issues. Your employer is currently paying for half of the taxes, if I'm not mistaken.

 

[Ivan Seeking]

Keep in mind that under the new Obama health care plan, as a small business, you can receive up to a 50% tax credit [a tax credit, not a deduction] for the cost of health insurance. But you may have to file as a corporation to do this.

Pre-existing conditions will no longer apply [to adults], sometime over the next few years. For kids, I think the law is already in effect.

Also, you can avoid a good percentage of SS payments [maybe all] if you set up the corporation correctly. According to my CPA, about half of the CPAs he knows do this, and half just pay into SS. I chose to pay.

Late edit

 

[airborne18]

Keep in mind that under the new Obama health care plan, as a small business, you can receive up to a 50% tax credit [a tax credit, not a deduction] for the cost of health insurance. But you may have to file as a corporation to do this.

Pre-existing conditions will no longer apply [to adults], sometime over the next few years. For kids, I think the law is already in effect.

Also, you can avoid a good percentage of SS payments [maybe all] if you set up the corporation correctly. According to my CPA, about half of the CPAs he knows do this, and half just pay into SS. I chose to pay.

Late edit

Great point, choose your CPA wisely. In philly it was not hard to find a shark CPA.

You are correct about the pre-existing, though it is not clear when that phases in for adults.

 

[mheslep]

My health insurance has no deductible and I pay $20 to see the doctor and any tests ordered are free, doesn't matter if there are $10,000.00 worth of tests, and yes, I've come close to that for my $20. To pick up the payments for this under cobra, including vision and dental is $420 a month.

Well two points:
1. Above I was referring to coverage specified in a plan. For instance, I know the same exact United PPO plan I have under my employer is also available as an HSA plan for the self-employed. That is, same infant care, same mental health, etc, etc.
2. There's no way to tie only the $20 you reference above to your out of pocket medical costs. Those three steep pay cuts you referenced earlier were also no doubt made with after your employer factored medical costs to their bottom line.

 

[mheslep]

In some cases. Thought it depends on the size of your company. If it were a smaller company, they probably offered a stock plan. I could not get the same plans from Blue Cross that my company offered. Granted the plan my company offered was awesome.

Keep in mind that a lot of large companies do not buy stock plans. The company I worked for self-insured for the first 10,000 for each employee. I could Cobra the plan, but I could not come near the deductables and PPO features directly from Blue cross.

Our firm uses United (was Blue Cross). The exact same PPO plan features were available as an HSA, and this United plan is fairly full featured, though I wouldn't call it 'Cadilac'

 

[mheslep]

Keep in mind that under the new Obama health care plan, as a small business, you can receive up to a 50% tax credit [a tax credit, not a deduction] for the cost of health insurance.[...]

How long does that tax credit last before it expires? That's no small point for a business owner.

 

[turbo]

As a private consultant, I had to buy health insurance on my own for a while. I got a reduced rate by joining my local Chamber of Commerce and getting into their group plan. Luckily, my wife got bored and got a decent job in the shoe industry with spousal health insurance coverage. That saved us a lot of money, since the group was large and the experience rate was modest (shared risk). Ask your prospective future employer and professional organizations if they can refer you to an affordable health-insurance plan. When I was programming and self-employed, I was pretty much on my own, and went "commando" for a while. NOT recommended. Serious illnesses can strike even healthy, fit, young people.

 

[turbo]

One little niggle... The definition of "private contractor" varies from state to state. Here, you have to be relatively free of supervision to be a "contractor". Your state might have some rules that make you an employee if your employer demands too much control over your work and/or your work conditions. Please look into this. Your AG will have guidelines, since they are keen to gain state payroll revenues from "employees" instead of chasing down countless "contractors". Good luck!

 

[airborne18]

Our firm uses United (was Blue Cross). The exact same PPO plan features were available as an HSA, and this United plan is fairly full featured, though I wouldn't call it 'Cadilac'

That is outstanding. In the last 20 years I tried twice and could not get a plan even close. Though the second time we moved to Delaware, and the state is small and has tough laws so a lot of insurance companies don't offer a wide range. So I will chalk the second time up to the state I moved to.

 

[Ivan Seeking]

How long does that tax credit last before it expires? That's no small point for a business owner.

As far as I know, it is permanent. Nothing that I've seen indicates that it has an expiration date. It is based on the number of employees [must be < 20] and I think the average salary [< $50K for full credit]

The only real complaint is that only ~ half of the eligible employers offer health insurance, which is a somewhat bogus objection given that this was part of the reason for providing the credit in first place.

Edit

To gauge the potential importance of the small business tax credit, it is useful to consider the amount that the Congressional Budget Office (CBO) estimates will be spent on it during the 2010 to 2019 period. According to CBO’s estimates on July 17, 2009 of the House Tri-Committee draft, small businesses will receive $53 billion in tax credits during this period.25 These additional funds will allow small business owners, who typically pay higher interest rates for loans than their larger competitors, to invest in their businesses and eventually create more jobs.26 This credit, like lower insurance premiums, should result in lower costs and thus in both higher wages for workers and larger profits for firms.

http://www.whitehouse.gov/administration/eop/cea/Health-Care-Reform-and-Small-Businesses

 

[mheslep]

As far as I know, it is permanent. Nothing that I've seen indicates that it has an expiration date.

Appears the small business healthcare tax credit http://thehill.com/blogs/on-the-money/domestic-taxes/99387-study-healthcare-law-encourages-small-businesses-to-stay-small"

The tax credits are available to businesses until 2016, two years after the healthcare exchanges are up and running
[...]
The new law provides a 50 percent tax credit to companies offering health coverage that have fewer than 10 workers who, on average, earn $25,000 a year. The tax credit is reduced as more employees are added to the payroll.
[...]
Using insurance premium cost projections supplied by the nonpartisan Congressional Budget Office (CBO), the study states that the credit reaches its optimal point at 13 workers, with relief peaking at $36,400 for qualifying business.
After the 13th worker the economics surrounding the credit change, the study says.

For employers with 15 workers, taking on an additional hire will reduce the credit by $1,400. For a company looking to expand from 20 to 21 workers, the credit will shrink by $3,733. And businesses will take a $5,600 reduction on the credit when hiring the 25th worker.

Also:

Beginning in 2014, for for-profit employers, the maximum credit is 50% of the employer’s contribution toward premiums, and 35% of employer contributions for nonprofit organizations.
The small business tax credit that is available beginning in 2014 is only available to an employer for two consecutive tax years. Thus, the small business tax credit is potentially available for a total of six years—the initial credit availability from 2010 through 2013 [@35%], plus the two-year credit period beginning in 2014.

http://www.ncsl.org/documents/health/SBtaxCredits.pdf

 

[Ivan Seeking]

Ah, so it phases out as the exchanges come online. That makes sense.

 

[Math Is Hard]

What's the difference in a tax credit and a tax deduction?

 

[Ivan Seeking]

What's the difference in a tax credit and a tax deduction?

When you list a deduction, it reduces your total taxable income, so you may only get 12%-15% [when all is said and done] of the deduction as cash in your pocket. A tax credit is cash directly in your pocket. It is the amount by which your tax - not your taxable income - is reduced.

 

[Ivan Seeking]

If you do become a contractor, we need to talk about deductions for business use of your home. You can do quite well if you do things the right way.