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An entrepreneur’s handbook for healthcare and tax planning
There are different options you can take advantage of to avoid dependence on an employer for health insurance. If you’re scared to leap into entrepreneurship because of health care costs, you have nothing to fear.
Before discussing options, let’s discuss insurance plans. If you’re super familiar, you can skip.
General Health Insurance Types
1. Cobra
Many corporate folks are familiar with this type of insurance. You’re often presented with the opportunity to partake of it after you lose your company benefits. Cobra insurance is the most expensive insurance offering and is usually for temporary purposes.
2. Company Group Insurance
Many employers offer group insurance. Some employees pay nothing out of pocket for these plans or very low premiums. These plans are costly for employers because the group plan price is always based on the least healthy employees at the company.
3. High Deductible Company Group Insurance
This plan is still expensive for employers since it’s based on the least healthy employees. However, this option offers lower premiums for employees. Choose this plan if you’re healthy.
4. Independent Individual Insurance
This plan is a great option that is very accessible. It offers low deductibles to its partakers, making it usually affordable
5. High Deductible Independent Individual Insurance
Believe it or not, high deductible insurance is the cheapest and more cost-friendly for healthy individuals. The thing about paying lower premiums as a healthy individual means you’re often overpaying for healthcare you’re not even using. If you only go to the doctor for your annual checkups and never have issues, this could be an excellent option for you.
If you have an emergency fund, opt for this plan. You’ll save thousands of dollars in the long run, and this plan also incentivizes you to take more preventative measures for your health. The healthier you are, the less money you spend.
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HRA: Health Reimbursement Arrangement
This self-administered plan is best for less healthy people who have high medical costs. You will need a small business to utilize this type of account, you don’t need an insurance plan, and there is no annual limit to reimbursement.
Big Win: Employer/business contributions are 100%tax-deductible.
HSA: Health Savings Account
These plans are only available to individuals with high-deductible insurance plans. Funds added to these accounts are tax-deductible. Interestingly enough, any money in this account can be utilized for non-medical expenses after 65. These accounts grow tax-free, and you can invest the funds in these accounts as you would an IRA. This account is best for healthy individuals since you’re paying out of pocket. Another cool thing about this account is that you can use the funds to cover long-term care costs (e.g., nursing homes).
Big Win: Savings grow 100% tax-free.
So, Which Plan Will Work Best For You?
Either way, all hope is not lost for those who lose their job, decide to do contractor work, start a small business, or work for a company that doesn’t offer health benefits.
For Healthy Individuals
You might have always believed health insurance is expensive. I know I did. We can’t guarantee our health, but we can use history to help us make informed decisions.
If you’re typically healthy, you’re most likely overpaying for health insurance.
Check out some high deductible plans – whether you’re an entrepreneur and/or still employed. If you’re paying out-of-pocket for your premiums, you can probably find a better high-deductible policy to lower this monthly cost.
Article Sources: Mark J. Kohler, Think Health, Health Partners, TASC
This content is for informational purposes only — not professional advice. Consult a qualified professional before making any major decisions.