This Could Be the Best Health Insurance for Self-Employed Photographers

This Could Be the Best Health Insurance for Self-Employed Photographers

With only a few days left in open enrollment, I'm seeing a lot of my friends on social media ask: "What is the best insurance for self-employed photographers?" If you live in the United States and are overwhelmed with the choices in private and market place insurance, let me give you a suggestion on one of the smartest types of insurance plans you can get for you and your family. Warning: this article is not exciting for photographers, but it could save you a lot of money in the long run.

First, let me say this up front: this article is not about politics or about what is right or wrong about health care in the United States. I have my own opinions about healthcare, but I simply want to share with you my approach to saving (and making) the most amount of money possible while still having coverage. Before I explain my strategy, let me explain why it's a good idea to have insurance in the first place. At the time of this published article, if you do not have health coverage in any given year, you will pay a pretty hefty tax penalty for the individual mandate.

In 2017, that penalty is $695 per adult and $347.50 per child, or 2.5 percent of your total household adjusted gross income up to a maximum of $2,085 (whichever is higher).

If you do the math, you could hypothetically get insurance for yourself at $300 a month, while the difference in being covered vs taking a fine might only be $1,600. In my opinion, as long as this penalty is in place, it usually makes sense to pony up and pay a monthly deductible and at least have coverage in the event of a catastrophic event. I did not have health insurance the first year the mandate was issued, and I know I paid way more in fees than the maximum mentioned above, so make sure you check the current laws because I'm sure the penalties will go up over time.

Also, more people file for bankruptcy because of health-related bills than any other type of financial burden. You may think you are perfectly healthy, and maybe you are, but unfortunate circumstances happen to the best of people during the best of times. All it takes is one negligent action from someone else to send you to the hospital. Medical bills are absolutely outrageous, and being caught without some sort of safety net is bound to bring you more heartache and financial trouble than you can imagine. 

Buying Into a Health Savings Account (HSA)

My approach to health care at the moment is to pay as little as possible in monthly premiums and avoid the doctor as much as possible (fingers crossed). I'm also a firm believer in saving as much money as possible and letting your savings make gains and interest for you. I'm sure you know the saying: "let your money make you money." And I think this is a very important aspect to building wealth. While I was investigating different insurance plans, I discovered a few insurance options called high deductible health plans (HDHP). Most of these options have lower monthly premiums, but as a tradeoff, they also include higher than normal yearly deductibles. If average deductibles might be $1,500 per year, these plans can easily have deductibles ranging from $6,000 - $8,000 per year. However, a small percentage of these plans also have the option of opening one of the hidden jewels of investment accounts: the Health Savings Account.  

A Health Savings Account (HSA) is basically a private investment account used to store money for healthcare expenses. For single individuals, you can deposit up to $3,350 per year into the account or up to $6,750 if you are married. The beauty of an HSA is this money is yours permanently, and you can accumulate a nice nest egg year after year. In contrast, many people might have an employer who offers a Flexible Spending Account (FSA), which is similar, but usually, the money does not get rolled over year after year. Money in an FSA typically has to be spent in a single tax year or else it is lost forever. Because of this, HSAs are typically more beneficial when compared to FSA accounts. Keep in mind with an HSA account, all your medical expenses can be paid with money in this account, and most of the time, those expenses paid also count towards your yearly deductible (over-the-counter drug purchases and in-office co-pays sometimes do not count towards your deductible).

Health Savings Accounts are a rare breed in that they are considered a "triple tax advantage." The first tax advantage with having an HSA is you can deduct the full amount against your gross income and not have to pay taxes on it. So, if you have a marginal tax rate of 33 percent, you can deposit $3,350 into your HSA and save yourself from having to pay $1,105.50 in taxes on that income. In this aspect, the HSA is kind of similar to a traditional IRA account. The second advantage to investing in an HSA is your earnings within the HSA are also not taxed. Once you have met the minimum required balance in your account, you can invest the rest of that money in a mutual fund and earn gains tax free. In this respect, an HSA is kind of similar to a ROTH IRA. The final and third tax advantage to a HSA is that you don't have to pay taxes on any of the money you spend on qualifying healthcare costs. This is also similar to the ROTH IRA, but instead of having to wait until the age of retirement, you can immediately start spending your HSA money on any bills and procedures approved by the IRS. Keep in mind, most medical bills are not tax deductible unless they exceed 10 percent of your gross adjusted income. An HSA makes all of your medical expenses essentially tax deductible. 

Advantages:

  • Contributions are tax deductible from your yearly income
  • Earnings and interest are not taxable 
  • Money spent on qualifying medical expenses is not taxable

Now, there clearly are some things to consider before jumping in and buying a high-deductible health plan that qualifies for a HSA. The first and most obvious issue is that you will not get any sort of insurance relief until you pay your entire deductible. If you are the type of person who goes to the doctor for every little sickness and health scare, you will be paying completely out of pocket. If you are young, healthy, and do not visit the doctor often, a high-deductible health plan might make perfect sense, because you rarely if ever hit your deductible anyway. 

However, if you suffer from chronic illness, have a spouse with medical issues, or have children who might need medical care more often than you, a high-deductible insurance plan might make it hard on the wallet as you will be paying out of pocket for a lot of your initial medical costs. In this case, it might be easier to pay a higher monthly premium and have a much lower deductible so that your insurance company will start covering your medical expenses halfway through the year.

Another disadvantage with high-deductible health plans is that each year, your premium can increase. If this increase is too great, at some point you might be paying the same amount in premiums as someone who has a much lower deductible. If you are not also taking advantage of the HSA, this quickly becomes extremely costly with little or no benefits compared to a normal low-deductible plan.

I know for me, 3 years ago, my high-deductible health plan was about $250 a month. Last year, it was $310 a month, and I just got my notice that my bill will be $340 a month for 2018. If you do the math here, I will have to spend $10,080 before any insurance picks up the costs of my medical bills ($4,080 in yearly premiums and a $6,000 deductible). For me personally, I am fairly young and healthy, and I know I can afford to spend $10k on bills in the event that something catastrophic and unforeseen happens to me. It's basically assurance that I'll be okay if shit hits the fan. In contrast, if your deductible was $1,500 per year, you could essentially spend up to $715 a month on your premium before the two health plans would equal out. Of course, this calculation isn't taking into account the benefits of the HSA I outlined above.  

The final disadvantage of having a high-deductible health plan and investing in an HSA is that you cannot pull that money out in case of an emergency. Actually, you can pull that money out, but you will be taxed and fined for doing so. If you do not already have a nice emergency fund nest egg built up, it might be tempting to withdraw money from your HSA, which will cost you a lot in the end. Luckily, most Health Savings Accounts are managed through a separate bank (Wells Fargo, Optum, etc.), so in many cases, this money will be out of sight, out of mind, which makes it less tempting to use it for non-medical related expenses. 

Disadvantages:

  • HSAs are only eligible with a high-deductible health plan
  • Premiums on HDHP usually increase each year and can become increasingly more expensive
  • Any money taken out of an HSA for non-qualified expenses is subject to tax and fees
  • At the moment, HSAs have a triple tax advantage, but laws could change and eliminate some of these benefits

Conclusion

Obviously, talking about insurance, taxes, and investments are not the most exciting topics a photographer wants to investigate. However, if you take the time to learn about the benefits some of these plans offer, you can really save quite a bit of money and also build quite a bit of wealth for retirement or in this case, for future health expenses. My strategy as someone in their mid-30s is to stay as healthy and active as possible while buying into a high-deductible health plan that offers me the long-term benefits of a Health Savings Account. This way, I can keep my monthly premiums low (that is an oxymoron) while reducing my tax burden and also taking advantage of a savings account that can grow tax-free. If you do wind up opening an HSA account, make sure you invest a decent percentage of that money into a mutual fund so you can gain income on the money you do not immediately need for medical bills. Having money sitting in an account that makes 0 percent interest or gains is not a wise place to store money.

If I do have to go to the hospital or visit a doctor, which will always happen from time to time, I simply ask the receptionist how much the out-of-pocket costs will be if I pay in cash and weigh that cost with the cost I will pay if I file it through insurance. American health insurance is ridiculous in that many times, the in-office fee for paying out-of-pocket is even less than the cost if I bill it through my insurance. I know with a high-deductible health plan, I will be paying 100 percent of that fee when my insurance sends me the bill in the mail (until I meet my $6,000 deductible), but if I want to apply those expenses to my underlying deductible, it might make sense to still bill through my insurance instead of paying less directly out of pocket. Regardless of what decision you make when it comes to insurance, make sure you weigh everything in advance, especially if you have a spouse, kids, or other dependents so that you can play the game as wisely as possible. 

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27 Comments

Johnny Rico's picture

"overwhelmed with the choices" No no, Obamacare made sure that there were no choices left in my area.

Patrick Hall's picture

I know the marketplace on healthcare.org sometimes has limited choices but surely you can call golden rule (united health care) or Blue Cross Blue shield and talk to a rep? I know my BCBS here has like 10 gold, 10 silver, and 10 bronze plans and maybe others that aren't named after precious metals.

Johnny Rico's picture

Nope, everybody pulled out of my county of 350k. Only 2 insurers for individual plans left. Went down a list of 10+ insurers for my state wasting my time. Christ I miss my crash plan that I had when this all began. Canceled. Here I am spending 4 times the amount for less coverage.

Jim Wilson's picture

Damn, that's "Affordable Healthcare" we passed it, and now we know what's in it....................

Chris Collins's picture

The gift that keeps giving. Its still a head scratcher to think about being fined if one chooses not to purchase insurance. I wonder how many have been forced away from the camera to move to jobs with corporate insurance?

Patrick Hall's picture

Sounds like you would potential benefit greatly if Trump's plan to remove state borders would be proposed. I don't know all the implications that would result from that happening but I remember him trying to argue that point back when he was running for office. I had no idea there were borders for counties though. What do the state agencies say that excludes you from their policies?

Johnny Rico's picture

"We’re sorry, but PHP no longer offers individual plans. " etc, BCBS same/similar phrasing.

John Pyle's picture

BCBS pulled out of the entire state of Georgia for indivual/family plans due to ObamaCare.

Patrick Hall's picture

Can you cite a reliable news source on this? AFAIK the healthcare bill didn't pass. I have too much to stake in testing those waters

Patrick Hall's picture

Looks like the individual mandate penalty is going to infact be removed from the tax code so my argument above that with a penalty you are already paying a significant portion of a healthcare plan is now wrong. I still recommend everyone having an insurance policy.

Christos Dikos's picture

Eliminating the ObamaCare Mandate is part of the new Tax Bill currently being hammered out in Congress. Elimination is in the Senate version; not in the House version.

Mr Hogwallop's picture

Many people who opt out of insurance do it because of lack of money not because of a philosophical or economic decision, so they probably don;'t have the money to pay into a AHS or IRA.

If people are poor aren’t there subsidies that make healthcare affordable? I know for me the prices went up 300% but I’ve heard it is affordable to others.

Mr Hogwallop's picture

Bob you forgot brand new Cadillacs...usually Cadillacs and steaks are included in that list. You might get along with a friend of mine who complains that the poor in the US are not "poor enough"

Bob, you can get a 40" TV at Best Buy for $137!!!

Patrick Hall's picture

Having been to one of the poorest countries in the western hemisphere and also some of the poorest neighborhoods in countries around the world, I always have to say that the poorest people in the United States are still probably in the top 5% of the world's most privileged people.

Even if you are homeless in America, you probably aren't starving and having to dig through garbage in a city dump only to take your findings home to a metal shack that floods with shit water and ghetto rigged pirated electricity lines. Add malaria, civil unrest, unclean public drinking water, local fiat money that is so inflated it doesn't have any buying power, and a host of other things and you quickly realize how great America has it. If you make even $10k a year, you are unbelievably rich compared to those who make $5 a week. Health insurance isn't even on the minds of probably 1/3 of the world's population. Here in America, you can go to any ER and at least be given care in critical situations.

I say all of these simply to say that financial irresponsibility is a flagship epidemic that plagues Americans. It's not just the poor either. Read the stats on how many Americas are 1) debt free or 2) have enough money saved up to even survive a major car repair (let alone 6 months of expenses in the event of unemployment) and your eyes will do a double take. It's unbelievable and ultimately if our consumerism and keeping up with the Jones's mentality doesn't change, our society is in deep trouble the next 10 - 40 years.

Patrick Hall's picture

I know at least two friends who argue that they aren't going to get health insurance not because they can't afford it but because the penalty is still less than the coverage and they think they are healthy.

I kind of understand this flawed way of thinking but recently I had a family member nailed by a sober driver in the middle of the day...life is but a breath and thinking you are immune to a catastrophe is poor thinking but people do think that way.

Yes, but there are some people who can't afford it, so they have two choices A) Pay for insurance and be bankrupt, or B) Skip the insurance and take the chance that a problem will bankrupt them. For some people that's not much of a choice. For me, the Affordable Care Act was a 12% tax increase.

Patrick Hall's picture

If you can't afford something as basic as health care (which I agree is over priced as is), there is a 3rd and 4th option and that is to C) work towards increasing your income and D) also to reduce your cash outflow. I'm not saying that as a snarky comment but rather your budget and finances do not have to be variables that are set in stone. Option C can also include finding a job that offers insurance.

If you are making so little money as a freelance photographer that you can't afford necessities, I would argue that maybe the timing isn't right to become a photographer. I've always told people to keep their primary job before jumping full time into photography and only make the jump once the photography income matches or exceeds the normal 9-5.

Mr Hogwallop's picture

Many young / low income people also take their chances by choosing to not have coverage. When i was young I had low priced coverage with huge deductibles and poor coverage. At least ACA tried to get rid of that but looks like Trump care is going to allow the shitty policies back into the market.

Joe Healey's picture

This was a well-researched and well-written article. Individual circumstances will vary, but this is a good read. Nice work Patrick.

Patrick Hall's picture

Thanks Joe. Just saw this pop up so many times and I dealt with it 2 years ago. Not sure how long it will last but I hope to contribute my 3rd $3350 into my account Jan 1st.

Bad things happen to good people - if I learned anything during my +24 years as a medic, it was you can be healthy one minute and it can all change the next through no fault or action of your own. Great article Patrick, but even more points for caring enough about others to write it.

Anonymous's picture

Good to know/consider... thanks for sharing!

Robin L.
http://itsrobinlorinow.com

From this side of the pond, we look at such issues with absolute astonishment. In the EU our (universal) National Healthcare systems cover everyone and everything for free, no matter what. Anything else sounds thirdworldish to us. On top on that you can have a private insurance which will shorten waiting lists and let you choose specialists and the nicer hospitals. And that private insurance is soooo much cheaper than in the USA. It doesn't hurt that much having a 19-25% VAT and have to overpay for any electronics after all, if you think about it.

When did this become a childish pissing content of "my country is better than yours"? You are proud of your country, fine, you can keep it.

I have lived and studied in 5 different EU countries, and through those years I had friends from all over the world, USA included. We indeed talked about all sort of things at large. I know very well how National Healthcare in many EU countries work because I had to use it.
And it's Universal and it's Free, and it works throughout EU countries, and it covers everyone, including the many million paperless immigrants than ever country has, well, that except in Switzerland.

In countries like Spain, world's 12th economy, you can have, besides the national one, a private health insurance for just €50 a month, and it will cover EVERYTHING. A young couple with two children there can pay just €120 a month for the whole family and have 100% coverage zero surcharges and private rooms at hospitals. Service is so good that many Brits travel or retire there just for that.
In the UK it's a bit of a mess, but it works somehow.
In Germany costs for private are certainly higher, but same full universal coverage if you don't have private, including for the 1.5mill war refugees that came in the last two years.
In the Scandinavian countries it's even better, a pregnant teenager will not only get medical for free, but also a paid house if she needs one.
Even poorer ex-comunnist countries have pretty decent an free universal healthcare systems, that shocked me quite a bit. etc, etc.

In all, It is what a civilized society expects from their governments. That in USA works other way it wobbles our minds.

As for USA "subsidizing the worlds healthcare and R&D", you should travel and read more. Just as an example look for what Germany or China (current leader) invest and patent in medical R&D.

I don't want to seem alarmist, but cancer can strike anyone. Women have the odds stacked against them; the statistics that have been quoted to us is that one of eight women will get breast cancer. I don't think that's great odds. I saw one hospital bill for a lumpectomy and it was over $45,000; fortunately, my wife has employer provided healthcare and we only had to pay a $1,500 co-pay. Two more lumpectomies and a final mastectomy to get clear, or negative, margins where no cancer was found in pathology. Now, she has five weeks of radiation to reduce the risk.

John Pyle's picture

The first time in history that they government has forced you to buy a product or a service or penalize you for not doing so. You don’t have to own or operate a car or a home so that insurance argument doesn’t count. Think about that.