Health insurance is not something you want to be without when you quit your day job and tackle that startup. Here's a great overview of your options.
Health Insurance when you Quit Your Day Job
by Grant Moore, Director, Benefit Advisors
Are thinking about taking the plunge and starting a company? But
what about health insurance? That's a big issue for many people
who are thinking about starting a company. There are several
options to consider, and many people find that an important first step
is to talk to an adviser who is in the business. This article
should help you understand the general options.
Starting up: A Company of One
Let's say you're about to quit your job and start out as a company of
one. You have several options for health insurance when you
become a one-person company:
COBRA
Assuming you have insurance coverage in your current job, and depending
on the size of your employer and how long you participated in the plan
(you need to have participated for 180 days or more), you probably are
eligible for COBRA. Check with your employer and/or carrier to
determine your eligibility, rate and the process for allowing you to
pay to keep your current plan in place for 18 months or longer. Do not
wait too long to explore this option because the window may close and
you could lose the opportunity to enroll.
Advantages:
• You can't be refused for any medical reasons.
Disadvantages
• It might not be the cheapest option. The rate
you're currently paying through your employer may not be the rate
you'll be paying for COBRA coverage.
• Must pay your old employer directly in most cases.
• In most instances, it is only available for 18
months - then you must pursue another option.
Continuation
Assuming that you have insurance coverage in your current job, and
depending on the size of your employer and how long you participated in
the plan (you need to have participated for 180 days or more), you
probably are eligible for Continuation of your existing plan.
Check with your employer and/or carrier to determine your eligibility,
rate and the process for allowing you to pay. Do not wait too long to
explore this option because the window may close and you could lose the
opportunity to enroll.
Advantages:
• You can't be refused for any medical reasons. The
rate you're currently paying through your employer may not be the rate
you'll be paying for this coverage. Your Continuation premium
could be significantly lower.
Disadvantages
• It might not be the cheapest option compared to
Portability or an individual plan.
• Must pay your old employer directly each month
• Expires at 6 months
Portability
Inquire with your health insurance carrier about portability options
and if you are eligible to participate. Portability is guaranteed
issue and, depending on your age, the rates will vary. It gives
you access to more choices (as opposed to Continuation, which keeps you
in the same plan you were in). Because of the choice of products
and it being an age rated product, this is sometimes a very attractive
option for younger individuals that cannot qualify for an individual
plan.
Advantages:
• You can't be refused for any medical reasons
• Doesn't expire in 18 months
• More options than Continuation
Disadvantages
• It might not be the cheapest option
Individual Plans
You can take a look at what Individual Plans are available "on the
street." These plans are available in nearly every price range
from many different carriers in the marketplace. You are required
to undergo health underwriting to qualify for an individual plan, so
you will need to
answer questions about your health history for the past 5 years.
There are no physicals, but the process can take weeks to complete
before you are approved or denied. In the State of Oregon,
employers are not allowed to purchase individual policies for their
employees. If you move to an Individual Plan with no gap in your
insurance coverage, then pre-existing conditions will be covered - so
it's a good idea to avoid gaps in your coverage.
Advantages:
• Doesn't expire in 18 months
• Many options
• This is sometimes the cheapest option
Disadvantages
• You must pass a health screening, so this option is
not guaranteed to be available
Temporary Policy
Let's say you're starting your one-person business, and you do not have
access to the above
options, but you think that soon you'll have access to other health
insurance options (maybe you
expect to qualify for a business group plan soon, or maybe your spouse
will qualify for a plan
soon). A Temporary Policy then becomes a good an option.
These can be purchased for up to a 6 month period.
Advantages:
• Can be relatively low cost, because the insurer's
risk is fairly low (you have to pass a health screening, and they can
choose to not renew after 6 months - so they are pretty well protected).
• Because the insurer's risk is low, you are more
likely too qualify for this type of plan versus, for example, and
Individual Plan (i.e., the health screening is less rigorous for a
Temporary Plan).
Disadvantages
• You have to pass a health screening
• You can only get it for up to 6 months at a time,
and then have to reapply (and could then be refused)
• You can only use this option for a maximum of 1 year
• It is a high deductible plan
• It does not cover preexisting conditions
Growing: A Company of Two or More
Now let's say your company is growing, and (counting yourself) there
are at least 2 employees. If you qualify as a "real business"
then you have access to two additional options. But you must
qualify as a real business under Oregon statute ORS 743.730 (or, in
Washington state, RCW 48.43.005). That requires having two
employees, each working at least 17 1/2 hours per week and receiving
compensation. If you qualify, then Group Insurance and
Associations/Trusts are an option.
The good news: if you qualify as a business, then insurance companies
cannot refuse coverage; it's guaranteed. (Of course, if they
decide your employees look high-risk, they can quote a high
price. However they must still offer the insurance.)
Group Insurance
If your company offers Group Insurance, then the employer is required
to pay 50% of each employee’s premium, not including the dependents'
portion. Most plans also require 100% of the employees to
participate on the plan or have other group health insurance.
Carriers require some tax, payroll, and legal documentation to prove
the legitimacy of the business, so meeting all of the requirements can
be tedious at times, especially for a startup.
Associations and Trusts
Your startup may be eligible to join an association or trust that
offers health insurance benefits to its members. Rules and
regulations are very different than in the group insurance market, but
the Associated Technologies Council is an association that offers such
benefits. (Subscribers to OregonStartups.com can join ATC without
paying the usual $100 application fee, but must still meet the ATC's
industry requirements for membership).
The ATC offers many services that are available free of charge that
make the administration of a benefits plan something that you will not
need to spend a lot of time on – allowing you to concentrate on your
core business.
Health Savings Account (HSA) Plans
This approach to your insurance program can be done through any of the
above types of plans. You are allowed to set up a pre tax account
to cover medical expenses that are not covered by the qualified high
deductible health plan. The money can roll over from year to year
just like an IRA. A great source for information is
www.hsabank.com, but you will need to purchase a plan locally.
It's important to note that a Health Savings Account Plan is just one
way to structure coverage,
but it needs to be provided via one of the plan approaches described
above: COBRA, Continuation, Group, etc. You still have to meet
the types of requirements described above. You might consider
this plan if you have no chronic health issues and have a tolerance for
a high deductible.
Summary
There are many options available for insurance coverage. You may
qualify for multiple approaches, so you'll need to look at the cost and
features of each one. Talk to an experienced insurance broker
with a client base of start-up companies to find out what fits best for
you. And if you do have coverage now, it's a good idea to make
sure you maintain coverage continuously. Otherwise, you're at
risk of not being able to buy private health insurance or having
preexisting conditions not covered when you do get a new policy.