After coming up with an idea for a smartphone-application business in mid-2012, Josh Lee started building it on nights and weekends, in part because quitting his sales job at a technology firm would have meant losing his employer-sponsored health benefits.
Mr. Lee, of New Holland, Pa., suffers from occasional severe headaches called clusters, and his wife depended on the coverage, too. He says he was worried that the cost of health insurance would be out of their reach and he wasn't sure if his business idea would work.
But six months later, Mr. Lee's employer handed him walking papers and he found himself having to purchase a health plan on his own for the first time.
"It was kind of scary," recalls the 38-year-old. "When you work for someone else, you don't realize what goes into buying health insurance."
Taking full responsibility for one's own health-care costs can be daunting. Average annual premiums are $5,884 for individual coverage and $16,351 for families, according to the Kaiser Family Foundation, a health-care policy nonprofit.
What's more, starting in January all Americans will be required to carry health insurance or face a penalty under the new health-care law, the Affordable Care Act. The penalty is a flat amount or a percentage of income, whichever is greater, and it phases in over three years. For 2014, the dollar penalty is $95, rising to $695 as of 2016. The 2014 income percentage is 1%, rising to 2.5% as of 2016.
If you have limited startup funds, the temptation to forgo health insurance and pay the fine may be strong. After all, entrepreneurs tend to be risk-takers, and if you're in good health, you may not need to see a doctor very often.
But consider the potential harm should you get seriously ill or injured and don't yet have employees who can fill in for you until you recover, warns Bill Brunelle, executive director of Independent We Stand, a movement of locally owned businesses. "Aside from the hours of productivity you lose, the cost of medical care without insurance could mean the lights go out and stay out," he says.
The good news is that when shopping for health insurance on your own you can choose a bare-bones plan, instead of the more-comprehensive plans employers generally offer. This means that even if you are eligible for Cobra, the federal program that allows you to buy extended workplace coverage for a limited time, you may be able to save with a less robust plan, such as one lacking nonessentials like vision, chiropractic care and gym discounts.
"As an entrepreneur just starting out, you want to be mean and lean," says Steve Roper, a health-insurance broker in Denver.
He also suggests seeking out a plan with a higher deductible than what you may have had in the past. This could result in lower monthly premiums and less pressure on your cash flow. Further, if you need to pay the deductible in full but can't afford it, he notes that hospitals typically offer payment plans.
A broker can help you find a health-care plan that suits your needs and budget at no charge, as most are compensated by insurance carriers. You can find a broker in your state by visiting the website for the National Association of Health Underwriters at NAHU.org.
Of course, you can also shop for coverage on your own, and the new state exchanges created by the Affordable Care Act may be a good starting point, because they offer subsidies to low-income earners. Visit healthcare.gov to find your state's exchange and see if you're eligible for financial aid.
You can also find health plans online through free, private marketplaces specially designed for self-employed professionals such as StartupInsurance.com and HealthAviator.com. Plus, note that some insurance carriers have physical storefronts where you can go to shop for coverage offline.
Mr. Lee, the Pennsylvania entrepreneur, says his research led him to a bare-bones family health plan that costs $350 a month and has a $3,500 deductible. His startup, called SnapMyAd, has just 10 paying clients. It makes a free phone app that lets users send photos they take of brands to advertisers in exchange for rewards, and charges advertisers $500 to $2,500 per promotion.
Despite the slow start, Mr. Lee says he doesn't regret his decision to buy insurance. Two weeks after SnapMyAd made its debut in Apple's app store in April, he experienced a cluster headache. Doctor's orders: a three-day stay in the hospital.
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