If you are self-employed and live in Washington state, read this (updated)

Important new update, October 2016: “Group of one” small group health insurance may no longer be an option for self-employed individuals in Washington state because of federal ACA law, though you can still purchase individual insurance either inside or outside our state’s health insurance exchange. I recently spoke with an analyst at the Washington State Insurance Commissioner’s office, who confirmed that though Washington’s “group of one” law is still on the books, it has been preempted by federal law (ACA and ERISA) and a legal challenge from an insurance company. Now you must have at least one employee on payroll to qualify as a group (and business owners are no longer counted as employees), so self-employed individuals or sole proprietors without employees don’t qualify for small group health insurance and must purchase insurance through the individual market. Insurance companies have begun phasing out “group of one” insurance on renewal or audits of group size, so keep an eye out for new language like this in your documentation:

“To qualify as a group health plan according to clarified common-law rules, at least one employee needs to be enrolled. Employees by this definition do not include someone who is: self-employed; a sole proprietor or his/her spouse; the sole owner of a corporation or sole owner with his/her spouse…”

Original 2010 post:

One of the biggest obstacles for the self-employed is health insurance. Individual health insurance plans are very expensive and often impossible to get at any price if you or anyone in your family has medical issues. So if you are self-employed, a freelancer, or a sole proprietor, your options usually are:  get coverage through your spouse (if you are lucky enough to be married to someone with a job that provides health insurance); pay a huge amount of money for a comprehensive individual plan (if you are healthy enough to qualify for one and can afford it); pay somewhat less for a crappy high-deductible or catastrophic individual plan (if you can qualify for one and can afford it); or go without insurance. This is why so many self-employed people–especially writers and artists–are uninsured. This is also why many people who want to quit their day jobs to work for themselves or start a new business can’t.

The fixes for this in the health care reform legislation (health insurance exchanges for individuals and small businesses, guaranteed coverage even if you have a pre-existing condition, etc.) unfortunately don’t take effect until 2014. That’s a very long time to wait if you don’t have, can’t get, or can’t afford health insurance.

However, there is some good news if you live in Washington state: if you are a sole proprietor or self-employed individual, you now may be able to qualify for group health insurance as a “group of one,” thanks to a new Washington state law (Senate Bill 6538) that took effect on October 1, 2010.

You can cover your family as dependents under a group plan. The best news is that unlike individual plans, group plans do not require applicants or dependents to pass a health screening, so you can get coverage even if you or someone in your family has a pre-existing condition. Group plans usually offer more options and better coverage at lower cost than individual plans.

It’s not easy to qualify for group health insurance, as you must meet strict guidelines, fill out a lot of complicated paperwork, and jump through a few hoops. For example, you must prove that you are a self-employed individual or sole proprietor, have been working for your business for more than a year, and at least 75% of your income comes from your business. You’ll have to submit copies of your Washington state business license and your most recent tax return (Form 1040 and Schedule C). You’ll need to do your research, request quotes, and carefully compare the different small group plans and their options for deductibles, annual coinsurance maximums, co-pays, prescription drug coverage, and premiums.

You can learn more about the new law by visiting the Washington State Insurance Commissioner’s website and calling the SHIBA (Statewide Health Insurance Benefits Advisors) helpline at 1-800-562-6900. To research and apply for small group health insurance, you can  use an insurance broker or contact insurance companies directly and request quotes and detailed plan information.

Matt and I recently completed the process, and though it took some time and effort, it was worth it in the end.

I wrote this post because few people seem to know about this new law, so please spread the word to anyone who might benefit from it. If you don’t live in Washington, go to the website of your state Insurance Commissioner to research the laws in your state.

Update, September 2013: You can find, compare, and buy health insurance plans on the new exchanges beginning October 1, 2013 for coverage that begins January 1, 2014. You can’t be denied because of pre-existing conditions. If you live in Washington state, go to the Washington HealthPlanFinder website. If you don’t, go to the HealthCare.gov website for more information.

Update, October 2013: If you are self-employed and live in Washington state, these are your options for 2014:

1. You can buy individual health insurance on the Washington state exchange. If your family income (modified adjusted gross income) is below 400% of the federal poverty level, you may qualify for subsidies (tax credits) to help you pay for health insurance purchased through the exchange. If you qualify for subsidies, you can either take them as an advance premium credit to lower your monthly premiums or wait until you file your taxes for 2014 and take the full tax credit then (which may be simplest if you can’t accurately estimate your 2014 income in advance).
2. You can buy “group of one” small group health insurance outside of the exchange if you qualify under the guidelines I outlined in my original post. Some insurers (like Regence) are only offering policies outside the exchange, while others (like Premera) are offering policies both inside and outside of the exchange.
3. You can buy individual health insurance outside of the exchange.

So, you can buy insurance inside or outside of the exchange, but if your income qualifies you for a subsidy, you’ll have to buy insurance inside the exchange to get it. 

Whether you apply for insurance inside or outside of the exchange, you can’t be denied because of pre-existing conditions, and specific “essential health benefits” (including hospitalization, maternity care, and prescription drugs) must be covered.

You should do your research and carefully compare plans and provider networks. (Note that many of the individual plans in the exchange have limited networks of doctors and hospitals.) You can also ask an insurance broker to help you sort through your options.

If you have questions, you can contact the office of the Washington State Insurance Commissioner. Check out the Washington HealthPlanFinder website or call 1-855-WAFINDER. The Kaiser Family Foundation website also has information for consumers.

Update, October 2016: See my note at the top of this post– for 2017, your options may be limited to purchasing individual health insurance on or off the exchange.