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One Way Obamacare Hurts Self Employment

Obamacare costs for self employedWe’ve talked a few times about the pros and cons of Obamacare. This post isn’t to get people fired up or start political arguments, but I did run across a true life situation recently that certainly makes it look like Obamacare hurts self employment, at least on the small scale.

One of my closest friends is a high school math teacher.  We’ll call her A. She is really good at being a teacher. However, like so many of us after years at a job, she is burned out. With all the regulations and state standards, she feels most of her time is spent trying to prepare for state testing instead of teaching young people skills that might actually benefit them in the long run. It’s especially painful for me because when I look at her, I see myself about three years ago when I was a shell of a person going through the motions to keep all the plates spinning.

My Frugal Friend

Now A and her husband, who is also a high school teacher,  are two of the most frugal people I know. They were probably the first landlords I met after we moved to Colorado. Back then all I could see was having bigger and better stuff, but she and her husband bought two small houses instead of a bigger one for themselves. They lived in one and rented the second place for extra money.

A few years later, they sold both houses to make one of their dreams come true. They used the profits of their home sales as a down payment and bought  several acres of land with a falling down old farm house. They lived in a camper with their toddler son while fixing up the place. They did almost all the work themselves, and now have a beautiful home that is run by solar energy. There are chickens and a greenhouse. My friends grow lots of their own food and even sell the excess as a side hustle. Her husband is a genius mechanic and can fix anything. They don’t ever buy new cars or appliances.

A’s ultimate dream is to build cabins on their property and run a farm to table bed and breakfast, but that is a huge endeavor, so they aren’t sure when or if it will ever happen. She doesn’t hate teaching per se, but has said more than once that she feels like anything creative or motivational has been squashed out. Her direct quote, “I feel like I’ve forgotten how to think outside the box. “

How many of us have felt that way?

A Chance At Self Employment

A few weeks ago, A found an opportunity that made her very excited. One of our local institutions had come up for sale. It’s a vintage Airstream trailer that the owner remodeled into a drive through coffee/morning breakfast shop.

The current owner built up the business and even purchased another more mobile trailer for off site events and special occasions. At its heyday, the business was doing really well. Then the owner had kids and Mommy guilt kicked in. She cut out working special events, reduced her schedule, and eventually moved to another town. She had a manager who ran the place for a while, but profits have gone downhill without the boss being onsite.

A and her husband got really excited about the business because it would be a bit like running the bed and breakfast but on a much smaller scale. There are other coffee shops in town, but no other drive ins and none with as much character and history. Being the smart money wise people that they are, they began to go over the books and make a list of pros and cons. We got busy and I didn’t talk to her for a couple of weeks, but when I touched base last weekend, it sounded like they had given up on the coffee shop.

It seems they were not put off by the work, spending savings, or by potentially not making much salary while rebuilding the business. The big red flag was health insurance.

Affording Health Insurance on a Low Salary

As a teacher, A is used to having her health insurance fully covered by her employer. If she quits teaching, she has the option of joining her husband’s plan or going on the exchange for herself and her 8 year old son. Both of them are healthy and don’t have any chronic health conditions.

The cost to join her husband’s plan is $825 a month. She could also go on the Obamacare exchange, but the least expensive bronze plan costs $549/month and has a $12,600 deductible.

Ah, but what about a subsidy? Isn’t that supposed to be the thing that allows corporate employees to flee the ranks of tyranny forever and become entrepreneurs? Isn’t health care supposed to be more affordable for people who don’t make much money?

If you plug in the numbers from A’s expected salary from the new business with her husband’s teacher salary, they should qualify for a $655 a month subsidy to offset the cost of health insurance. With the subsidy, she could even bump up to a silver plan for about $30/month and lower her deductible to a reasonable $3,000!

Group Plan Kills the Deal

Don’t get excited just yet. Because she is eligible to join her husband’s group plan, she is not eligible for the subsidy. No matter how much your spouse’s plan costs or how little you make, you can never get a subsidy if you have the possibility of joining a group plan.

To me, this is an incredibly unfair rule. Group plans are way more expensive than individual ones, and if you don’t have an employer to eat some of those costs, you are screwed.

Choosing From Bad or Worse

So basically, these are the options my friend has if she does not want to continue in education.

  • Buy the coffee business. Suck it up and pay almost $10,000 a year for the group plan or $6500 for the individual plan, with the risk that if there is huge health emergency, that’s another $12K to shell out.
  • Buy the coffee business and go without insurance. The penalty is much more affordable, but what if she gets sick?
  • Find another job that carries insurance or pays enough so she feels comfortable with buying her own.
  • Get a divorce. If she were not married, she could qualify for an Obamacare subsidy.
  • Quit her job and do nothing. They would have to live off one teacher’s salary, but A and her son would qualify for Medicaid, potentially saving them up to $18,500 a year for sitting on her ass.

Yes, I realize if A really wants to do the coffee business, she could find a way to pay for health insurance. It’s the same argument that I could send my kid to Stanford if I made it enough of a priority. But is that fair? Should a budding entrepreneur have to pay ⅓ to ½ of her salary to afford health care just because her husband qualifies for a group plan?

My thought is that you should be able to get a subsidy  based on income, regardless of what you or your spouse’s job offers, but, I don’t get to make the rules. I’m afraid my friend is going to have to either deal with burn out or find something else, even if this could have been a perfect opportunity.

Do you see any other solutions for my friend’s situation?

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About Kim Parr

Kim Parr is a private practice optometrist, freelance writer, and personal financial blogger. You can follow her journey to 20/20 financial vision at Eyes on the Dollar.

28 comments

  1. Obamacare is a step in the right direction (I believe everyone should have access to affordable health care), but ithas a lot of kinks to be worked out. People forget that the whole “subsidy thing” is actually funded by taxpayers. So, we’re all paying for it anyway. I haven’t heard of a single solitary self-employed person that is happy with their health insurance costs through the exchanges. I once went to the one for my state (minnesota) to compare what was available vs what I could get through my employer. It wasn’t even close…..I’m very thankful for my employer sponsored plan.

  2. I didn’t know about the spousal rule. Otherwise that would be a sweet deal!

    • It would be a sweet deal if she weren’t married to someone with a group plan. They have seriously talked about getting divorced to skirt the rule. Sad.

  3. Have her look into healthcare sharing ministries. We are in a different but similar situation, and I found HSMs to be the only affordable option now available to us.
    It is a complete myth that Obamcare is helping the self-employed. Out of the many self-employed people I know, the hurt/helped ratio is about 75/25.

    • I think it only helps if your income and situation qualifies for a subsidy, which makes earning more money not a good thing. I will tell her about HSM, but I think at this point, she is resigned to stay in her job.

  4. Unfortunately Obamacare is pushing the cost of health insurance out do the reach of many self employed individuals. Check out Colorado Health OP. I haven’t used them but they are a co-op so pricing might be lower than the exchange.

  5. To honestly answer your question, she should stay working as an employee. Employers cover a big chunk of the health insurance costs of their employees (whether employees realize this or not, it’s true) and with Obamacare it can make doing something like owning/running a small coffee/cafe unrealistic.

    • It does make me sad to see the small entrepreneur get squeezed out. If I were in her position, I’d probably stay in my job.

  6. If your friend really is intent on becoming self-employed, I would second Holly’s suggestion for her to at least look into the health shared ministry option. DH and i recently switched to it because we are both self-employed and our health care monthly premiums were insane. The HSM wasn’t our preferred option but it was the best decision for us given our circumstances.

    • I think for now, she is going to stay with her job or look for something different but still within education so she can keep her benefits. It would also be hard to give up the retirement benefits.

  7. I don’t have any advice, but I do have to say that reading this has opened my eyes a bit. I was/am considering quitting my FT job at some point in the near future. When that happens I plan on working PT at the retail store I currently work at and building my side hustles even more to replace the rest of my income. The only thing I’m really nervous about losing is health insurance…

    • It is kind of a catch 22. You want to make more money obviously, but if you make less, you get help with insurance. I have no problem paying my fair share, but a third of your salary for crappy coverage just seems wrong.

  8. I hate to hear stories like this and they seem to be more common then not. I know so many people who are just opting out of paying for anything all together and trying to great their own self-insurance fund. It just seems crazy to me to have to pay $500 a month and STILL have to shell out over $12,000 if something goes wrong. Thankfully, I am able to participate on my hubby’s plan or we would have a really difficult time budgeting for healthcare in our home.

  9. I wish I knew Kim but I’m trying to figure all this out myself. I don’t even think I qualify for any kind of discount and I don’t have anything to fall back on. It’s totally confusing to me so I’m working with someone to try and help me out with it.

  10. I’ve spent some time looking through the exchange and your friend might want to look at the CO-OP option. It’s really reasonably priced. The key is to see if doctors in your region are participating.

    • That’s the big problem in our area. The hospital group pretty much owns all the physician offices and they only accept the bigger corporate plans like Rocky Mtn Health, United Healthcare, or Anthem.

  11. I hate hearing about stories like this. I can see the vision that Obamacare has, I just don’t know how it’s going to work out for the American people as a whole. I plan on becoming self employeed in the near future, but since I will be a veteran I will have to deal with something a little worse….The VA Hospital.

    • It makes me sad at the lack of or mismanagement of care that many veterans receive. I think like Medicaid or Medicare or maybe even Obamacare, the promise is much greater than the actual ability to deliver.

  12. We are in this same situation except my wife is already self employed. It would cost us over $1000 to include her and our 2 boys on my plan so we have had a separate plan for them. The lowest Blue Cross TXplan is $500/month. Just went up $65 for 2015. I just heard about short term insurance so am switching to that for 2015. It means I have to pay $1000 fine next year but the premium is only $150/month. It’s basically just catastrophic insurance but we’re healthy so I’m willing to take the risk.

    • hanks for sharing your situation. Luckily, my daughter and I have a “grandfathered plan” that is still expensive but about half of what we’d pay on the exchange. If Anthem ever cancels that plan, we will be in a similar spot as your family. The coverage of short term sounds kind of like what we have now with our $11K deductible.

  13. That’s a tough spot to be in. We are a single income family and pay $1200/month for myself and two kids to be on the husband’s plan. It’s quite crazy but necessary. We have never been a two income family but I can see how your friend’s choice is extremely hard. I’m one to want to ‘go for the dream’ …

  14. I am so glad you posted this article. I was trying to explain to my mom how outrageously expensive health coverage is (she is retired military and has GREAT coverage) and could not figure out why I was ineligible for the subsidy. Now I know it’s because of my husband. Hmmm….maybe I need to get a divorce.

    • I hate that that is sometimes the best option, but I do actually know people who have divorced because being married ends their ability for various government programs like the subsidy.

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