How to Get Health Insurance When You're Self-Employed
Healthcare today is in a state of flux, which makes it even more difficult and challenging for self-employed people or independent contractors to find relevant and timely information regarding health insurance.
Those who are self-employed don’t generally receive options for group health insurance, health plans, or a benefits package from their employers, such as fringe benefits, paid vacation or paid time off, or retirement benefits. That doesn’t mean other options aren’t available when looking for health coverage.
What Types of Options Are Available for the Self-Employed?
The number of self-employed individuals in today’s workforce continues to grow. According to the Bureau of Labor Statistics, approximately 16 million people were self-employed in the U.S. by mid-2019, all without traditional employee benefits.
While looking for health coverage options, a number of factors affect health insurance costs regardless of the type of insurance or plan. Such factors include age, location (cost of services in local areas as well as by state differ and can affect premiums), and whether the coverage is available for individuals and family.
For the self-employed, a few options are available.
The health insurance marketplace serves as an exchange where consumers from all demographics can access health insurance options. While the healthcare mandate is no longer applicable, it is recommended that any self-employed person have health insurance. The marketplace offers policies that cover numerous medical expenses such as hospitalization and outpatient and inpatient procedures or surgeries.
The marketplace offers a variety of coverage options in their bronze, silver, gold, and platinum plans. When browsing, you’ll find that states determine the type and number of companies that meet various state’s criteria for participation. The marketplace provides a one-stop shopping and enrollment service for standardized as well as government-regulated health care plans.
Open enrollment periods typically range November 1 through December 15. Provided that all paperwork and information is provided, a plan becomes effective on January 1 following the open enrollment period. Outside of open enrollment, individuals can get health insurance following a life event such as losing other coverage or getting married or qualifying for Medicaid.
COBRA, otherwise known as the Consolidated Omnibus Budget Reconciliation Act, was primarily designed for employees and their families who lost health benefits and gave them a temporary option to continue their group health benefits for a limited amount of time, typically 18 to 36 months.
COBRA is ‘continuation coverage’ and is designed for those who’ve lost their employer-sponsored health plan following work termination.
To qualify for COBRA, the insurance plan you choose must be created with your trade or business name. The insurance option comes with a 60-day window from a qualifying event. Costs for COBRA plans or your responsibility and are not covered by employers who previously covered your health insurance plan.
A number of ‘qualifying’ events to opt for COBRA continuation coverage includes:
- Reduction in the number of hours of employment – which may lead to loss of group healthcare plan due to lack of qualifying hours
- Termination of the employee’s employment for any reason other than “gross misconduct”
- Divorce or legal separation from a covered employee
- Death of a covered employee
- The employee is entitled to Medicare
Additional criteria for qualifying events for spouse and dependent children are also applicable. While COBRA provides coverage for up to three years, costs are often prohibitive.
In addition to the “marketplace,” a self-employed individual or sole proprietor might also purchase any of a wide variety of medical insurance plans through eHealth, which provides access to dozens of healthcare plans. eHealth also offers short-term insurance. There is even a small business option that would allow small business owners to offer health insurance to their employees.
Most popular health insurers offer packages and plans for the self-employed, so compare benefits and premium and out-of-pocket costs.
Social Security and Medicare/Medicaid Options
For those who meet criteria, Medicare/Medicaid is also an option. Medicare eligibility starts at 65 years of age, but you might meet criteria if you have been on Social Security disability for two years.
Medicaid recipients can be self-employed and eligible if the household income falls below certain income levels, which vary by state. For information on Medicare options, contact your local or state Department of Social Services. Additionally, the official Medicare website has important information you’ll want to know.
For mature self-employed individuals who don’t benefit from employee offers or benefits, look to resources such as your local Social Security office and log on to Medicare and Medicaid Services for additional information regarding healthcare coverage for tax purposes and other healthcare coverage options.
Self-employed short-term disability insurance is also an option that might be able to pay a portion of your income if you lose work time due to an illness or injury. This type of insurance is provided through most insurers, with benefit periods ranging 13 to 26 weeks. Some policies cover up to 100% of your income.
Private Insurance and Other Considerations
It is still possible to choose individual health insurance plans through private insurance companies, although monthly premiums may be higher than those of group plans. No matter which plan is chosen, note common elements that influence monthly expenses for that plan.
Premiums, deductibles, coinsurance, and co-payments should be carefully reviewed. Different plans, as well as in-network or out-of-network providers, may also affect those costs.
Freelance organizations and unions provide some affordable health insurance support as well as member benefits. Research the National Associate for the Self-Employed, the Freelancers Union, and the National Association of Health Underwriters for additional information and guidance for affordable healthcare plans.
Tax Deductions for Self-Employed Health Insurance
The list of tax deductions for small business owners is long. Thankfully, there are some health insurance deductions available to self-employed taxpayers. You might also be able to deduct insurance premium costs for your spouse, dependents, and children younger than 27 years of age on your tax return.
For some, that means claiming 100% of your health insurance premiums and costs (medical and dental) from your taxable income, thereby reducing your overall tax obligations.
As long as you meet criteria, a self-employed individual might be able to take federal income tax deductions for every dollar you spend or pay for out-of-pocket expenses for healthcare. Even so, that doesn’t help if you incur a huge medical event.
Is Health Insurance Necessary if I’m Self-Employed?
Effective January 2020, note that some states do have individual health insurance mandates for self-employed workers. At this time, those states include:
- District of Columbia
- New Jersey
- Rhode Island
Other states are also considering a self-employed or individual health insurance requirement including Connecticut, Oregon, and Washington.
Accidents happen. If you are laid up due to sickness or an injury for any amount of time, your potential to generate income may be severely limited for days, weeks, or even months in extreme cases. The importance of self-employed health insurance is not to be underestimated.
Health insurance offers protection for unexpected health expenses, which is a risk for all age groups and reduces the risk for huge medical costs and possible bankruptcy. Having health insurance might help reduce stress, which can also have a negative impact on your mental, emotional, and physical health and wellness. If you’re self-employed or operate a small business from your home that you run yourself, seriously consider health insurance.