Save on Healthcare as a Freelancer
How to make the most of your healthcare dollars and protect your bank account as a 1099 contractor
Healthcare is anything but simple. And if you’re an Uber driver, DoorDash delivery gal, or you work part time at a grocery store, your employer has probably left you to deal with this mess on your own.
And, boy, is it stressful. We know. We’ve been there, searching online only to be overwhelmed with exotic words, foreign acronyms, and so many options that it’s nearly impossible to figure out what’s actually the right choice for YOU. Well, if you’re anxious about making the right decisions for your healthcare, you’ve come to the perfect place. We’ve put together an easy-to-understand deep dive of how to save money while protecting yourself from unforeseen circumstances. Over the next fifteen minutes, we’ll equip you with the tools and understanding you’ll need to take control of your health and optimize your savings. If you’d rather listen to the podcast version of this article, tune into the episode on SoundCloud:
Key Take-Aways
If you get anything out of reading this article, these are the major conclusions you should remember:
Health Insurance is an important investment. Nobody is invincible and unexpected accidents can put your life’s hard work at risk in the blink of an eye. Health insurance caps the amount of money you spend on healthcare in any given year so you won’t have to worry about catastrophic hospital bills.
You can easily browse, compare, and purchase the best insurance plan options for you through Stride. Generally speaking, high deductible HMO (health maintenance organization) plans are the most affordable plans on the market, but if you know you have siginficant medical expenditures coming up this year, it may be worth investing in a more expensive insurance policy with more coverage.
Save money on doctor’s appointments using Remedy and on prescription medication using Blink. While high deductible insurance protects against catastrophes, you still need to pay for most of your routine healthcare out of pocket. Remedy helps you save up to 75% on doctors visits using breakthrough technology and makes getting medical care as simple as texting a friend. Once you’ve gotten a prescription, Blink helps you capture amazing discounts on generic prescription medication.
These points alone will take you a long way, but if you want to make the wisest financial decisions about your healthcare, you’ll want to build a much more nuanced understanding of the options at your disposal. So without further-ado, let’s jump right into the meat of the topic.
Picking an Insurance Plan (Or Understanding the One You’ve Got)
So what is health insurance anyway?
In theory, the idea behind health insurance is pretty simple. It’s all about protecting yourself from risk. Let’s illustrate with an example.
Meet Bob. Bob is a relatively healthy and financially responsible 35 year old man who has about $10,000 of savings in his bank account. Bob does all the right things. He exercises a couple of times a week, eats as healthy as he can, and he puts a good chunk of his paycheck aside to save up for retirement. But 2017 isn’t a particularly lucky year for Bob. One Friday night, on his way back home after a long day of work, he falls asleep at the wheel and gets into a brutal car accident. He’s rushed to the emergency room, and after recovering for several months, he’s almost back to his normal self. The only difference, however, is that he’s now got a $100,000 bill sitting on the dining table, and he has no clue how he’s going to pay for it. Everything he’s ever worked for has been completely wiped out in the blink of an eye.
But let’s consider an alternative sequence of events, where relatively healthy and financially responsible Bob decided to take some amount of his savings to buy himself a health insurance policy. At its core, the insurance policy is an agreement, backed by a legal contract. Bob pays the insurance company a fixed monthly fee (also known as his insurance premium) that is deteremined by his risk of incurring a medical bill (via age, pre-existing medical conditions, location, etc.). In return, the insurance company promises to make some monetary contribution to Bob’s healthcare costs. In the case of his accident, the insurance company foots most of the bill and Bob only has to contribute $7,500 out of the original $100,000 that he owed. The crisis has been averted.
So in a sense, having health insurance is a lot like having a personal healthcare bodyguard. You have to make monthly payments (usually on the order of $200 to $400 per month for a healthy 35 year old person) to keep it around, and you generally won’t have a strong need for it on a regular basis. But when danger strikes, your insurance policy will leap to your rescue and take a bullet for you.
Do I even need health insurance?
“So you’re telling me that my health insurance can cost me thousands of dollars a year?!? What if I just took my chances?”
This is a valid question. After all, if you were 100% certain that you would never need to spend a lot of money on healthcare, you would never have the need to purchase insurance. If you’re a healthy person living a healthy lifestyle, seems like an easy way to save money right?
Not so simple.
There are also legal consequences to skimping on health insurance. Just because you opt out of purchasing an insurance plan doesn’t mean you get off for free. The Affordable Care Act, passed by President Obama in 2010, requires all individuals to purchase health insurance. If you choose to forgo healthcare coverage for the year, you must pay a penalty that is the greater of $695 per adult ($347.50 per child) and 2.5% of your annual household income above the tax filing threshold ($10,000 for an individual, $20,000 for a couple). But this is a lot of numbers, so let’s try to paint a clearer picture of what this means for you. If you’re a 35 year old healthy male living near Los Angeles or San Francisco, and you choose the cheapest insurance plan on the market (taking into account state subsidies), here’s how monthly premiums compare to paying the fine.
The story here is pretty clear. If you’re not making a whole lot of money, the fine may be more expensive than the insurance itself. But even if you’re making a good living, opting out of insurance might mean paying 25% to 70% of the price of a policy with none of the protection.
Protection is important, because being healthy does not equal being invincible.
What most people don’t realize, is that even some of the most basic parts of the healthcare system are extremely expensive. If you aren’t careful, you can quickly rack up an unmanageable bill. Just because you lead a healthy lifestyle doesn’t mean you’re free of all medical risk. Many expensive medical conditions affect healthy individuals just as often as they affect unhealthy individuals.
Something as simple as breaking a bone (like if you accidentally slam your car door on your finger) can cost several thousands of dollars once you add up the doctors visits, scans, and casts. And if you happen to wake up with a hernia, appendicitis, or anything else that requires surgery, your medical bill can easily skyrocket past tens of thousands of dollars.
Don’t gamble with your financial security. Health insurance is worth it.
Where can I buy an insurance plan?
Many people receive health insurance through their employer or the employer of their spouse. The Affordable Care Act requires any company with 50 or more employees to provide health insurance to its employees. However, if you work as an Uber driver (or with any of the other on-demand startups), work part-time, or are generally self-employed, you may not qualify to receive health benefits through your employer.
This may seem confusing, but Uber, Lyft, and other on-demand startups are not required to provide health benefits to their partners because their partners are legally classified as “contractors” (also known as the 1099 worker, because their taxes are filed through the 1099 form) rather than “employees” (also known as the W-2 worker, because their taxes are filed through the W-2 form). That means that, unless you or your spouse is employed full time as a W-2 worker through some other means, you’re on your own when it comes to finding the right insurance policy.
To help individuals make wise purchasing decisions when it comes to health insurance coverage, state and federal governments have put together a set of insurance exchanges. An exchange is an online marketplace where you can compare insurance options, their premiums, and the coverage they offer. Several states offer websites of their own to help their residents navigate insurance options. If you live in California, you can use the Covered California website to browse available insurance options. If you live in a state that doesn’t manage its own exchange, you can use the national exchange at Healthcare.gov.
In addition to these government-run exchanges, there are several companies that have put together resources to help you find the perfect insurance plan. Our personal favorite is Stride Health, which allows you to enter information about your age and medical risks and helps you optimize for the best “bang for your buck” insurance plan.
What are my choices (and will it hurt my wallet)?
If you’ve spent any time looking through options on the exchange, you’ll quickly realize that reading through insurance plans is a lot like trying to understand a foreign language. Bronze HMO. Silver EPO. Platinum PPO. Let’s break these down.
Let’s start with the simple part. All insurance plans are classified according to a metal: bronze, silver, gold, or platinum. The more valuable the metal, the more benefits the plan affords. As a general rule of thumb, bronze plans cover 60% of your healthcare costs, silver plans cover 70%, gold plans cover 80%, and platinum plans cover 90%. As you might guess, however, platinum plans are generally more expensive than bronze plans.
Then there are the acronyms. There are three major plan types you’re bound to come across while looking around for the right insurance policy:
- HMO — the health maintenance organization
- EPO — the exclusive provider organization
- PPO — the preferred provider organization
The differences between HMO, EPO, and PPO plans are in how the insurance company controls costs. Each plan type operates with a different set of rules about how you can receive your healthcare and how your physicians can bill your insurance company. As a result, your choice has implications for how you make healthcare decisions.
What is a provider network?
The core of any insurance plan is the underlying provider network. A plan’s provider network is the set of physicians who have agreed to operate under the rules organized by the plan and have successfully applied for membership into the network.
Knowing if your physician is in-network with your insurance plan is important, because it determines whether the cost of care will be covered by your plan (and to what extent). If you are on an HMO or an EPO plan, your insurance will NOT pay for any care received from an out-of-network physician or testing provider. If you are on a PPO plan, your insurance will usually pay for care from an out-of-network physician, but usually to a lesser extent than if you received care from a physician who is in-network with the insurance plan. Generally it’s a good idea to seek care from a physician who is in your insurance network (or who “accepts your insurance plan”), and to ask explicitly before you come into the doctor’s office!
Primary care, referrals and pre-authorization.
Another distinction between insurance plans is how they deal with primary care (or general and wellness medicine) and specialty care (like cardiology, dermatology, neurology, etc.). In both HMO and EPO plans, you’re required to have a dedicated primary care provider (often abbreviated as your PCP). The thesis here is that when you have a dedicated point of contact in the healthcare system and someone to coordinate all of your major health needs, you’re more likely to lead a healthier lifestyle (and therefore reduce your medical risk). In PPO plans, you are not required to maintain a relationship with a primary care provider.
HMO plans, however, take the construct of the primary care physician even further. Unlike in EPO or PPO plans, where you can seek specialty care on your own, HMO plans require you to get a referral (which is basically a fancy permission slip) from your primary care provider before scheduling an appointment with a specialist. In a sense, your primary care provider is a gatekeeper to the more expensive parts of the healthcare system. The HMO relies on your primary care provider to make sure that you only utilize healthcare you actually need, and as such, the primary care provider becomes the insurance company’s primary vehicle to control costs.
In EPO and PPO plans, you do not need to get a referral from your primary care provider to see a specialist. But as we will see later, this extra freedom comes at a price (usually in the form of higher premiums). Instead of relying on your PCP as the gatekeeper, EPO and PPO plans control costs by relying on pre-authorization. Pre-authorization is the process by which you get permission from the insurance company before purchasing an expensive healthcare service. While the specifics depend on the plan you end up choosing, a general rule of thumb is that you’ll need to obtain pre-authorization before you receive MRI/CT scans, pricey prescription medication, and medical equipment. If you don’t get health services pre-authorized, your insurance company may refuse to help pay for them.
A recap of plan types.
Let’s quickly review our new learnings. Plans are categorized as bronze, silver, gold, and platinum based on your policy’s coverage. The more precious the metal, the more the insurance contributes to your medical bills, but also the more expensive the monthly premiums. In addition to coverage, plans are categorized as HMO, EPO, and PPO plans based on how they choose to control costs. These strategies for cost control have significant implications for how you obtain your healthcare services, and the differences are summarized in the table above.
What are deductibles, co-insurance, and copayments?
If you dig deeper into the insurance plan, you’ll find that there are several intricacies of how and when insurance starts contributing to your healthcare costs. On a high level we can break it down into three major components, your:
- Deductible
- Co-insurance
- Out-of-pocket maximum
Your annual deductible is how much money you have to spend out of your own pocket before your plan starts covering your healthcare costs. In simple terms, it’s a trigger that activates the full force of your insurance policy. For example, let’s say Bob has an insurance plan where his deductible is $5,000. While Bob will likely pay less for for healthcare than if he were uninsured (because he has access to rates that have been favorably negotiated by his insurance company), he still has to pay for everything out of his own pocket until his expenses reach $5,000 for the year. The most affordable plans on the exchanges, are the high deductible insurance plans or HDHP’s (which have deductibles in the thousands of dollars). Note that the one exception to this rule is preventative services. Your health insurance is required to completely cover the cost of preventative health services.
Once Bob reaches his deductible, however, his insurance begins to share the costs of his healthcare with him. The portion of his healthcare costs that Bob still has to pay for past his annual deductible is known as his co-insurance. On a standard bronze plan, the co-insurance is likely to be around 40%. So, if Bob gets a bill for $6,000, he first pays for the first $5,000 completely, at which point his deductible is maxed out. Then he pays for 40% of the remaining $1,000. Thus, Bob pays $5,400 and his insurance company contributes the remaining $600.
The most powerful force of an insurance plan, which will protect you in the case of a catastrophic car accident or an unexpected heart attack, is your out-of-pocket maximum. Your out-of-pocket maximum is a cap on how much you will ever need to spend in any given calendar year. Let’s say Bob’s out of pocket maximum is $8,000 and he has a severe hospitalization that results in a $100,000 bill. The first $5,000 comes out of Bob’s pocket. Then out of the next $7,500, Bob pays 40% (or $3,000) and his insurance contributes 60% (or $4,500). At this point, Bob has reached his out-of-pocket maximum of $8,000 per year. As a result, the remaining $87,500 comes from the insurance company.
One final point before we move on. Once your deductible is met, some plans will utilize copayments instead of co-insurance for cost sharing for certain services (like doctor’s appointments, generic prescriptions, urgent care visits, etc.). A copayment is a fixed fee for utilizing a service. In the copayment model, regardless of the sticker price of the service, you pay a fixed fee and the insurance pays the rest of the bill on your behalf. Similar to services that use the co-insurance model, copayments count towards your out-of-pocket maximum and you no longer have to pay them once you reach your annual cap.
Enough with the vocabulary. Let’s talk numbers.
We’ll end the first half of this article by going through a deep dive of the most affordable HMO, EPO, and PPO plans available in the San Francisco and Los Angeles areas through Stride Health. Before we proceed any further, we’ll mention that choosing the plan with the cheapest premiums may not necessarily be the best idea for you. For example, if you’re on expensive prescription medication, know that you’ll be getting a surgery this calendar year, have a complex chronic condition, or are planning to get pregnant, you’ll want to delve deeper into the benefits of the options available to you and potentially invest in a more comprehensive insurance policy with a lower deductible.
With that caveat in mind, our case study will continue to center around healthy, 35-year-old Bob. For the purposes of this investigation, we’ll ignore any savings that might come from state subsidies. The most affordable plans and some of their specifics are summarized in the table below:
There are three major observations that are apparent from these plans:
- More choice with your healthcare usually comes with a price. The HMO plans are generally significantly more affordable than EPO and PPO plans (on the order of $600-$1000 less per year in premiums and estimated out-of-pocket costs).
- Deductibles are nearly as high as the out-of-pocket maximums. This is a common trend among high deductible plans. Generally, the insurance plan acts mostly as protection from catastrophic events (besides preventative care, which is always covered as required by law). That means that you’re responsible for nearly all of your healthcare costs as a consumer.
- Seeing the doctor is EXPENSIVE. While copayments under some plans can protect you from the full price of a doctor’s office visit, the copays aren’t chump change. Under any of these plans, seeing a doctor outside of the annual wellness exam will cost $75, at the very least. This doesn’t include the fact that you may need to schedule a follow-up visit, purchase prescription medication, etc. on top of taking a day off of work to go into the clinic.
The upshot of all of this is that, as a 1099 contractor, merely purchasing an insurance plan off of the exchange isn’t enough to ensure the protection of your savings. It’s a critical and necessary first step, but we’ll conclude article by talking about how to save money once you’ve picked your insurance policy.
Saving Money on a High Deductible Health Plan
Don’t miss out on the subsidies.
As we mentioned above, subsidies can make a huge difference for reducing your monthly premiums if you make under a certain amount of money. For example, if you make $40,000 a year in San Francisco, you can save $1,200 a year in premiums using state subsidies. Sounds like a great deal right?
Now, what if we told you that the vast majority of 1099 contractors qualify for these subsidies without even realizing it. How? Well it turns out that the government calculates your income AFTER deducting work related expenses. This means that you’re able to reduce the income you claim by subtracting tax deductions like mileage, gasoline, and even half of the self-employed tax you pay.
The result, according to Stride Health, is that most Uber drivers can save 70% on their insurance premiums by remembering to factor in their deductions. You can easily track these deductions by using the Stride Drive mobile application.
Take advantage of free services provided by your health plan.
You can save yourself from a world of pain by living a healthy lifestyle, but knowing what to focus on or how to focus isn’t always the easiest task. Are you eating the right diet for your body type. What’s your current risk for heart disease or diabetes. Are you worrying about cancers or sexually transmitted diseases?
Turns out you can get answers to all of these answers for FREE. Your plan comes with several free resources for preventative care that often go highly underutilized, but you can dramatically reduce your medical risk by taking advantage of these resources:
- Annual wellness exam
- Well-woman visits
- Cholesterol screenings
- Blood pressure screenings
- Diet counseling
- STD prevention, screening, and counseling
- Colonoscopies for colon cancer screening (if over 50 years old)
- Flu shots and other critical immunizations
- Cervical cancer screenings
- Mammograms for breast cancer screenings
- Depression screening
- Type 2 Diabetes screening (if high blood pressure)
- Help quitting tobacco/smoking addiction
- Breastfeeding support and counseling
- Autism screening (for children)
- Vision screening (for children)
Quickly browsing through your plan details may also reveal additional services that come free of charge with your insurance policy!
Save money on prescription drugs.
When you get sick or get diagnosed with a chronic condition, you’ll likely need prescription medication. Depending on the type, prescription medication can get rather pricey, so we’ll leave you with a couple of tips on how to optimize your savings on medication.
Medication usually comes in two flavors: 1) brand name and 2) generic medication. Brand name medication is usually produced and packaged by the original company that created the medication. It generally runs on the expensive side. If a medication has been on the market for a long time, however (and therefore is no longer patent-protected), other companies may start to also produce the same medication and sell it at much lower costs to be competitive. These medications are known as generics. Generic medication is just as effective and safe as brand name medication, so always ask your doctor if a medication is available as a generic! Your wallet will thank you.
In addition to asking for generic medication, sometimes you can access deals on prescriptions that are far cheaper than the negotiated prices offered by your insurance policy. Blink Health has done an incredible job helping people save 50% to 80% off of the list price of many common prescription medications.
For example, Blink Health offers Lipitor, a common cholesterol medication, at a whopping 96% discount off of the list price — $9.93 ($4.93 for first time users) vs $132.52.
Avoid going into the emergency room.
One of the common, and yet costly mistakes, made by Americans is going into the emergency room when they didn’t need to. Obviously if you think you’re having a stroke or a heart attack, you should call 911 right away and head to the ER. But if you’re just having stomach pain or broke your ankle, urgent care will usually suffice. Urgent care is still pricey (usually $100 to $150 copays), but it definitely beats getting a $1,000 bill for using the emergency room unnecessarily.
Save money and time on doctor’s appointments.
Let’s face it. Seeing the doctor today is a pain. You have to schedule your appointment several days in advance, unless you want to spend over $100 on an urgent care visit. If you’re on a high deductible plan, a doctor’s appointment is going to cost you at least $75. And on top of all of this, you’re going to need to take valuable time off of work.
All in, if you’re taking 3 hours out of your work day and you’re usually making $20 an hour, seeing the doctor knocks you down $135 at the very minimum.
So what if you could get a doctor’s advice and prescriptions — basically everything you’d get from a primary care or urgent care visit — from the comfort of your smart phone? This is where Remedy comes in. Remedy is a virtual primary care clinic. Just download the mobile application, choose from one of the elite doctors on the platform to be your personal physician, and message them any time about anything health related. Remedy can also order blood tests and imaging (CT scans, X-rays, and MRIs) at local testing centers and send prescriptions to your local pharmacy.
For the first time ever, Remedy allows you to grab best-in-class healthcare on the go, even between passengers, and only costs $30 an appointment (including all of the follow-up interactions)! Remedy can do all of this by using artificial intelligence to eliminate the paperwork that doctors spend 70% of their time on. By reducing administrivia for doctors, Remedy brings the best healthcare to you for a fraction of the price.
Let’s Recap.
We’ve covered a lot of ground today. We’ve given you all of the knowledge you need to understand the health insurance landscape and pick the insurance plan perfect for you. We’ve also talked about how you can leverage several techniques to manage your healthcare costs effectively if you end up choosing a high deductible health plan. Don’t forget to check out Stride Health, Blink Health, and Remedy to unlock unparalleled savings, and don’t hesitate to drop me a line at nikhil@remedymedical.com if you have any questions.
Disclaimer: I am a co-founder at Remedy
