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Im Self-employed; Can I Insure Myself with Health Coverage?

May 29th, 2009

Can I Insure MyselfI’m Self-employed; Can I Insure Myself with Health Coverage?

As any self-employed individual knows, health plan rates are very high. You may be paying for health coverage that you will rarely even use. Some self-employed people decide to invest in themselves, rather than making the insurance companies rich. It often makes more sense to invest their money in their own health risk. The money could be invested in the bank each month, untouched for years, rather than paying a premium to the health care company .

When you pay an insurance care company a premium for health coverage, the company is taking all the risk. As a self-employed individual, you may take on all the risk and become self-insured. Many people invest their money in short-term investments that can be liquidated quickly if there becomes a need for health care. Money that is invested usually grows faster than money that sits in a savings account, although some people do choose a savings account instead of investments.

If you are serious about covering your own health insurance risk, you will need to open up a savings account to set aside money to cover medical expenses, and possibly invest some of the money into short term investments that can be turned into fast cash if it is ever needed.  Rather than you paying a premium to an insurance company, you would set that money aside and pay the insurance company an administration fee to handle your account. When you self-insure, the insurance company will calculate how much money you have to set aside to cover your risk. The insurance company calculates the amount of money you would set aside for your self-health insurance by measuring your possible risks offset by future losses. This is done through the work of actuaries.

The premiums (money to be set aside) are calculated via a complicated formula by actuaries.  The formula is derived from the law of large numbers, the empirical law of averages, and the frequency theory of probability. Actuaries can give an estimated guess about the probability of risk each person who applies for health insurance or self-insurance. The insurance company has to put a price on the calculated risk that you represent, and that price is the premium you put aside for your health coverage.

An individual who self-insured for self-employment health care coverage would need to be very well off financially. Large sums of money would have to be put away for the risk of illness and injury. Many business owners who have large companies self-insure themselves and their employees. An insurance company administrator handles the claims for a fee. Even though the company has to invest large amounts of money for self-health insurance, it is often much more affordable than sending large premiums to an insurance company for coverage you may not often use.

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