Five minute action: Calculate your worst-case health insurance cost
One question I receive quite a bit about going 1099 is what to do about health insurance.
Because most people get health insurance through their employer, it's a bit of a black box in terms of how you would get it and what it would cost if you went out on your own.
Though you will likely have several health care options if you go 1099 (including COBRA through your current employer), it's good to figure out what your worst-case scenario health insurance costs will be so you can make an informed decision about your billable rate and how much you'll take home compared to your W2 income.
Here is an easy way to do that:
- Go to ehealthinsurance.com
- Select "individuals and family" and punch in your zip code
- Select "No" to the question "Are you a business owner with employees"
- Select "Affordable Care Act Plans"
- Input sex, birthdate, and tobacco use for each member that needs coverage (maybe just you, or maybe you and your family)
- Answer the question about your income and then see unsubsidized plans
- Sort the results by "Monthly Cost: High to Low"
- Write down the monthly premium figure for the most expensive plan
- Find the "out-of-pocket limit" figure and divide it by 12 to get the monthly cost (click on more details)
- Add the monthly premium and the monthly out-of-pocket limit cost
That will get you your maximum, monthly health insurance cost. Note that I added the out-of-pocket limit to account for a scenario in which you are basically maxing out your in-network health care.
If I were getting a plan just for myself, the most expensive plan is a BluePreferred PPO Gold plan with a $1750/deductible for $805.23/month premium, and a $6,650 annual out-of pocket limit for a total monthly cost of $1359.40/month.
This is before I get dental or vision insurance which will run me another $45/month or so so let's just call it $1400/month.
Now, this is just the worst case scenario. You might not need the most expensive plan and you may not use enough health care to hit the out-of-pocket limit. I was 27 when I got my first 1099 gig and I just picked a very high deductible plan because I was a healthy young guy.
Later I jumped on my wife's employer's plan after we got married and then we both jumped on my new company's health insurance plan after she left her company.
BUT, it's important to go through the exercise because you can plan around the worst-case cost scenarios. No sense in going 1099 to blow all your profits on expensive health care. Just bake it in into your rates acccordingly.