Recalibrating for self-employment: health insurance

Get Rich Slowly - Personal Finance That Makes Sense.

Recalibrating for self-employment: health insurance

This post is by staff writer Holly Johnson.

When I left my full-time job in April, I lost several of the valuable perks that come from working for someone else. Included in the casualties were my company-sponsored retirement plan (and 4 percent match) and my company-paid smartphone.

Those two losses were somewhat easy to accept since they both had a fairly easy fix. Since I lost my 401K match, I needed to save more for retirement. Done. And since I lost my company-sponsored phone, I looked for a low-cost option that would fit into my budget. Once all of that was squared away, I focused on my single biggest hurdle when it came to self-employment; finding health insurance. (Joanna Lahey, an associate professor of economics at the George H.W. Bush School of Government and Public Service at Texas A&M University and the National Bureau of Economic Research (NBER) wrote about health insurance options for the self-employed at GRS last year. You can read that post here.)

Initially, we were still under my husband’s work-sponsored plan. However, after I left the job where we both worked, my former employer was only covering about 30 percent of our family’s monthly health insurance costs. So, for almost $600 per month (and his employer paying an additional $250), we had a catastrophic plan with a $5,000 deductible, and no dental or vision coverage. It wasn’t great, but I was happy that my husband’s job provided some sort of group coverage for my family.

That was, until we decided that my husband would make a career change that would leave us without any sort of health insurance at all. And, to be honest, I was scared. We hadn’t bought insurance on the open market for at least 5 years and the last time we did proved to be a challenge to say the least.

Our frustrating past experience with private health insurance

Almost seven years ago, my husband and I started working for a small family-owned mortuary. And since they only had 6 full-time employees, they didn’t offer a health insurance plan at the time. So, instead, they gave full-time employees $325 per month to shop around and buy their own. At first, I didn’t realize that there would be a problem. However, I would soon find out that buying health insurance with maternity coverage would be much more difficult than we ever could imagine.

When we first started looking, we found that very few plans even offered maternity coverage on the open market to begin with. And, it seemed like the ones who did made it prohibitively expensive. I applied for a few different plans and got denied repeatedly due to the fact that I had back surgery almost 5 years prior.

(According to healthcare.gov, health insurance plans can’t refuse to cover you or charge you more just because you have a pre-existing health condition starting in 2014.)

However, after a year of trying to get coverage, I finally got accepted to a health insurance plan that offered maternity. The only caveat was that there was a 12-month waiting period to get pregnant. Twelve months!

Since I was already 27 years old by then, I was frustrated that I had to wait another 12 months to have my first child. Unfortunately, I didn’t have much of a choice. Because of a back surgery I had in my early 20′s, having a home birth wasn’t going to be an option for me. I could, of course, go without maternity coverage and choose to pay for my child’s delivery out of pocket. But, what if something went wrong? From my point of view, going without maternity coverage would expose us to the exact kind of financial risk that we were trying to avoid by getting coverage in the first place. So, I went with the plan. I waited…and waited some more until I was finally “allowed” to get pregnant. And, at the age of 29, I was finally able to experience the best thing that has ever happened to me: motherhood.

Starting in 2014, a woman cannot be denied coverage because of a pre-existing or current health condition, like if she’s had breast cancer, depression, or is pregnant. A woman will no longer be charged more for the same coverage as a man just because she’s a woman, meaning that being a woman will no longer be a pre-existing condition. More women will also have access to maternity coverage and care for their newborns. In fact, current estimates show that at least 8.7 million women will gain maternity coverage because of the health care law.

whitehouse.gov

My daughter was the most beautiful thing I had ever seen and sooooo worth the wait. However, the whole ordeal left a bad taste in my mouth when it came to buying insurance on the open market. It seemed complicated, difficult, and like a giant pain in the butt. I wasn’t sure what was in store for my family this time around, but I hoped that our search for coverage would prove to be less painful than the last.

A second try on the open market

And, it should be easier this time, I thought. First of all, we have two kids now, and we don’t want anymore, so there was no need for a maternity rider on our plan. Secondly, we’re all healthy. Aside from an annual well visit for each of us, we haven’t gone to the doctor for the last few years at all. So, I started my search for health insurance on the internet for convenience, and that’s when I stumbled upon ehealthinsurance.com

Ehealthinsurance.com is somewhat of a “one-stop shop” for individual and family health insurance plans. I started by entering basic information for all four members of our family — age, birthdate, and whether or not we used tobacco products — and ehealthinsurance.com provided us with a variety of plans to compare with one another. After searching through what seemed like a million health insurance plans and options, I narrowed our search down to four different plans that appeared to offer the best value:

• Anthem Premier Plus 20 percent 1000 with a $1,000 family deductible, has $30 office copay and provided 80 percent coverage after the deductible was met: $1186.39 per month
• Lumenos HSA Plus with a $5,000 family deductible, provided 100 percent coverage after deductible was met: $630.08 per month
• Lumenos HSA Plus with an $11,000 family deductible, provided 100 percent coverage after the deductible was met: $377 per month
• Humana Monogram Total/7500 Plus RX with a $7500 individual deductible and $15,000 family deductible, provided 100 percent coverage after an individual family member met their deductible and full family coverage after two family members met their deductible: $277 per month

I kind of felt like Goldilocks at this point. I didn’t want a deductible that was too high in case one of us got really sick. However, I didn’t want a low deductible plan because I didn’t want to pay an absurd monthly premium. After batting some ideas around, we decided that the Lumenos plan with an $11,000 family deductible and HSA was the best choice for our family. It wasn’t so high that we would be in trouble if one of us were to get sick or hurt, but it was still low enough that we had a fairly reasonable monthly premium. And when we factored in our extremely low health care costs over the past several years, we decided that the higher deductible plan made sense.

So, for now, we’re settling into our new health insurance plan and hoping that everyone stays well. Health insurance isn’t cheap, but I’m glad to have it. And after all of that mess, I hope that I don’t have to shop for it again anytime soon.

During my search, I also found out a lot more about all of the new changes that are coming when most of the Affordable Care act takes hold in 2014. If you want to read about how the Affordable Care Act may affect you, check out healthcare.gov for more information.

Have you ever bought health insurance on the open market? If so, did you find it a challenge? And, what kind of plan did you purchase?

7 rules for growing slow (but sustainable) wealth

Get Rich Slowly - Personal Finance That Makes Sense.

7 rules for growing slow (but sustainable) wealth

This guest post is by Pejman Ghadimi. Pejman is the founder of SecretEntourage.com, an author, an entrepreneur and a leadership consultant.

Many will argue that fortunes can be made overnight; while that may hold very true in some cases, the majority of those who have made it will tell you it did indeed take a great deal of time coupled with some correct financial choices. For me, wealth did not come solely from entrepreneurship or financial risk, but rather it came as a result of diversifying my investments all while growing my equity leverage and identifying the right opportunities early on.

I made my first million before the age of 27. It took me close to 14 years of hard work and trial and error to get there. But I did get there nonetheless, and I can tell you that it was quite a learning experience. I not only learned a lot about my capacity and tolerance for risk, but also quite a bit about financial systems and loopholes that exist. I want to share with you today seven rules that you can follow to making sure you also get on the right path to slow, but sustainable, wealth.

Rule 1: Think net instead of gross. Many get consumed with the continuous desire to grow their gross income but often forget to leverage their net income. Increasing your net income by lowering your taxes is no different than raising your gross income. Make sure to reassess your net situation often by leveraging your write-offs early on.

Rule 2: Embrace economic pressure. There will be many times in the next 10 years where you will identify an opportunity to invest or be part of something that requires you to be uncomfortable in your financial position for a set period of time. Just keep in mind that risk equals reward, and without any type of financial risk, you are doomed to stay a prisoner of the lower interest rates set by banks.

Rule 3: Create residual income streams. If you are bound to only receive one form of income, it is most likely you are living paycheck to paycheck and very unlikely that you are actually saving a large chunk of that paycheck. One of the main reasons people struggle with savings is because they are attempting to save money they otherwise count on to live and as a result find themselves in a position that forces them to spend it, even if they were lucky enough to save it for a short while. Most survive of their main income and grow with through residual side income. Examples of side income may include rental income, dividends, affiliate marketing, and side businesses.

Rule 4: Turn liabilities into assets. While it is true that most of the spending an ordinary family makes is buying more liabilities, you can differentiate yourself by investing in assets instead. Equity is key when making purchases. Let’s use the example of a car since we all know most cars are liabilities. If you buy a new car for $26,000, then it is likely that it will lose the majority of its value in the first three years, but will eventually depreciate to about 20 percent of its original value by the time you actually pay off your loan (assuming a five-year loan). You therefore paid $26,000 and used your car until it was worth close to nothing. Instead of buying a liability, think of how you can turn the same item into an asset. The same $26,000 car is available used and has taken the majority of its depreciation in the first three years, and therefore can be purchased for 50 percent off that price. In many cases, it can be purchased with a similar warranty as a new one, and very low miles. Since you are finding a car with much lower miles than it should have for 50 percent of its original value, you simply can use the car until it reaches a normal mileage point and then sell it within two years at a minimal loss (usually less than 10 percent from your buying price). As many of you may not be familiar with the car market, keep in mind that great low mileage examples of your favorite cars are not hard to come by and can be found on sites like cars.com, autotrader.com and ebaymotors.com. A little patience and due diligence can save you a tremendous amount of money on this necessary but depreciating asset. Here is a link to a book that explains this system in detail.

Rule 5: Save for six months of hardship, invest for a lifetime of prosperity. While savings matter, you only need to save so much. Instead of creating budgets to save as much as possible, create budgets to save some and invest the rest. Invest your leftover capital into long-term sustainable companies and stocks. This by itself is a savings account with minimal risk that leads to much better returns than an FDIC-insured account, especially if considering a long-term approach.

Rule 6: Define your long-term financial strategy early on. Don’t wait until you reach a certain amount to define the strategy you should follow in order to accumulate more wealth. You should set financial benchmarks early on and ensure progression and diversification occurs as you reach them. By setting financial goals yearly, you can get much closer to growing rather than having years gone by only surviving. Think of your goals in various ways outside of dollar amounts to reach. For example, I used to set various goals that were financial in nature but not dollar-driven. It would perhaps be being in less than an 8 percent tax bracket one year, but the next year it would be to have six properties for rent instead of two. It’s always about understanding the financial picture in your head before painting it.

Rule 7: Scale your financial growth. As I said earlier, diversification is key to ensuring slower but healthier returns while minimizing risks. Scaling is a strategy you can use early on to set forth diversification methods based on the financial picture you want to paint for yourself as mentioned in Rule 6. Scaling is your ability to add different types of investments to your portfolio based on the size of your wealth. Create a guideline as to how to scale matters. For me, it looked something like this.

• Under $100,000 in cash assets – Goal was to lower tax bracket to 12 percent by leveraging write-offs.
• Between $100,000 – $250,000 – Add real estate for rental income to portfolio.
• Between $250,000 – $500,000 – Add high-risk stock portfolio
• Over $500,000 – Look for investments overseas as well as invest in other businesses or ventures.

Keep in mind that these seven rules are not geared to help you reach fortunes overnight, but rather help you frame your 10-year path for sustainable wealth, as it will take discipline and hard work with a hint of tolerance for financial risk.