So you are thinking about quitting your W-2 job and diving into the life of a solo entrepreneur (real estate or otherwise), and you are wondering, ‘What do I do about Health Insurance?’
How to keep themselves and their family insured is a common concern for people leaving their day jobs to enter real estate. So I interviewed health insurance expert Jen Botting to dig into answers! Jen Botting has been specializing in health insurance for 22 years and before that she was in public affairs with the navy. She loves helping people and finding a plan that fits each individual’s specific needs by delving into their wants, needs, and finances.
This is what I learned….
As you head into the big complex world of insurance you most likely are going to head into ‘the marketplace’ to access your options.
What is the marketplace?
The marketplace is an insurance space where all the large insurance plans decide what types of plans to offer. Initially with the passing of Obamacare many of the real estate giants were offering a variety of individual plans however in more recent years there is really only one insurance agency, Blue Cross, supporting individual plans outside of smaller local providers. The state you live in therefore makes a huge difference in what you can access. Location is defined by the address on file, which generally is where you live.
Why is an individual plan more beneficial than marketplace options?
Most marketplace plans are slimmed down and offer really basic coverage while individual plans have richer options. Individual plans may also not be confined by enrollment dates depending on the state you live in. They have more flexibility and tend to be better plans all around.
So why would you go into the marketplace?
Going into the marketplace is beneficial if your income is low and you are looking for subsidies that offset initial monthly costs when your income is not secure. Of course this comes out of your taxes later, but it is a way of shifting money around so that your monthly expenses are lower. So if you are someone who claims enough deductions on your taxes that your taxable income is really low this option might be worth it for you.
When you begin looking, how do you get started? What are enrollment dates, and can I get coverage if I leave my job between enrollment?
Open enrollment starts Nov. 15th and usually goes to Dec. 15th. This year the administration has extended to Jan. 15th. Does that mean you can’t get insurance again until Nov. 15th of the following year? Yes, it does, unless you have a qualifying event. The IRS defines qualifying events as everything from leaving or losing a job to a move. This allows for open enrollment as well as possible subsidies that you would access through your state government and tax system.
Now that you understand the marketplace, let’s talk about your top three options available in more detail.
Option #1: Cobra
Cobra is a federally mandated option for anyone who leaves their employer that allows you to maintain your health insurance plan for up to 18 months. You have to pay the full premium rather than the usual split with your employer and two percent is added on as a fee, so it is quite expensive however it will give you uninterrupted coverage.
Option #2: Find an Individual Plan.
There are individual plans on the marketplace that change state to state. Currently there are a lot of employees leaving their jobs and going out on their own. Individual coverage depends on age, health, location.
Pros and Cons: Cobra usually ends up being less cost efficient than unique individual coverages and plans that suit all your unique needs. However finding and navigating individual plans in the marketplace can be challenging and limited based on the state you live in.
Option #3: Create a Group Plan
You can create a group plan by association plans and working with or through a professional employer organization. These plans can be created when a group of people join together under an umbrella that gives them a market discount that allows individuals to access the plans according to their needs while still experiencing the reduced cost that companies normally receive.
Pro-Tip: If you have someone in your family with pre-existing conditions, Obamacare protects individual plans from pre-existing conditions. However some group plans outside of Obamacare will do the same.
So you’ve grown your business, are hiring employees and you aren’t able to offer benefits yet, what can you offer?
Small employers have a new option called Individual Coverage through a Health Reimbursement Account. This allows you the employer to set up an account for your employee called an HRA. You may have heard of an HSA or a Health Savings Account which is owned by the employee. An HRA or a Health Reimbursement Account, is owned by the employer who puts in and holds money for their employee to cover possible health medical expenses. An HRA account also counts as a tax deduction for your business if you use pre-taxable income.
You can also offer a stipend but the benefits of an HRA over stipend, is if you give your employees a stipend they will be taxed on the stipend whereas if you hold the money as the employer your employees are not taxed on it and you get the deduction.
What is Section 125 and what is the difference between an HRA and section 125 for your taxes?
Section 125 is a system an employer puts in place for their employees that allows them to play for premiums on a pre-tax basis.
An HRA is slightly better for the employer, but also cares for the employee because it is set up to be fully insurance compliant so it is not a taxable stipend.
If you are a small business ready to get group insurance for your employees for the first time, what do you do?
If you are feeling overwhelmed navigating the marketplace, go to an insurance agent that has you fill out a census. Then the agent goes out to the marketplace with the information and gathers plans for your company. Then you discuss the details with the agent to find the plan that is best for both you, the employer and your employees.
Does it cost you to hire an insurance agent?
No, insurance agents make money only if a plan is in place, and their commission is from the insurance company. This broker commission is written into insurance company premiums.
Trust me, when I say I know how daunting it is to navigate the marketplace, it’s because I have tried! Finding someone like Jen Botting to help you find the best plan for you as an individual or your company can save you significant money and help you get great coverage.
I hope these tips help reduce stress in a necessary but often challenging part of making the move from employee to entrepreneur!
For more tips on the nitty gritty of business and life as a real estate entrepreneur, go to 7FigureFlipping.com!