Insurance for the Self-Employed: Options and Considerations
Key takeaways:
While traditional full-time employees may have access to employer-sponsored health plans, people who are self-employed have to pick and pay for their own insurance coverage.
Some health insurance options for self-employed individuals are: Affordable Care Act (ACA) insurance policies, Medicaid, and Consolidated Omnibus Budget Reconciliation Act (COBRA) coverage.
While the costs are important to consider, it’s essential to compare the benefits of different plans to make sure your healthcare needs are covered.
Understanding how health insurance works can be challenging for anyone. But it can be even more daunting for self-employed individuals.
Unlike traditional full-time employees, who often have access to employer-sponsored health plans, self-employed individuals have to pick and pay for their own coverage. As a self-employed person, you’ll need to make sure you and your family have adequate coverage for everything from a minor cold to something more severe like a heart attack or cancer.
With so many options, rules, and costs to consider, the journey to getting coverage can quickly become overwhelming. Below, we’ll break down health insurance options for self-employed people and what you should consider before purchasing a plan.
Prescription Savings Are Just the Beginning
See what other benefits you qualify for—from cashback cards to cheaper insurance.
Health insurance for the self-employed: 5 factors to consider
No matter who you are, there are no clear-cut guidelines for selecting the right health insurance policy. And when you’re self-employed, you’ll likely have to do even more research, because you don’t have an HR department to assist you with questions. Before you purchase health insurance, you should consider the five factors below.
1. Your personal healthcare needs
You should consider factors like your age, preexisting conditions, and upcoming medical expenses when trying to find the right health insurance plan. For example, if you have a medical condition like diabetes, you may want to look for comprehensive health insurance that covers the medications and supplies you need.
2. Costs
Review your finances to determine your budget for the following coverage-related costs:
Deductibles: Before your insurance kicks in, you will have to pay a deductible. Generally, the lower your deductible, the higher your monthly premium will be.
Premiums: This is the amount you will pay every month to maintain your health insurance coverage. Your premium is based on factors like your age, location, type of plan, and tobacco use.
Out-of-pocket maximum: Your policy’s out-of-pocket maximum represents the total amount you will potentially have to pay out-of-pocket for costs such as copayments, deductibles, and prescription medications. After this is reached, your plan will generally cover 100% of your covered healthcare services for the rest of the year.
3. Prescription medication coverage needs
If you take prescription medications, it’s important to review a health plan’s formulary to see if the plan covers your medications. (A plan’s formulary shows both the generic and prescription medications that are covered.) But keep in mind that you may have to pay a copay, such as $5 to $20, or coinsurance, a percentage of the price of the medication, when you fill your prescriptions.
4. Your family status
If you are planning to have children, you should confirm that a plan includes maternity and pregnancy coverage. You may also need pediatric care coverage if you already have young children. Or you may need access to specialists if you are taking care of elderly parents.
5. Network of providers
Review the hospitals, healthcare providers, and specialists covered under a health plan you’re considering. If you have a preferred healthcare provider, then make sure they are within the network of the plan to minimize your out-of-pocket costs.
Read more like this
Explore these related articles, suggested for readers like you.
What are the best health insurance options for self-employed individuals?
Depending on your budget and healthcare needs, there are a few health insurance options to choose from as a self-employed individual. Below are a few options to consider.
ACA exchange
The Affordable Care Act (ACA) exchange is a one-stop platform for health insurance. A self-employed individual may benefit from the following:
Plans with comprehensive coverage: Health plans sold on the ACA exchange must offer essential health benefits, which include coverage for mental health services, prescription medications, laboratory services, and more. Also, these plans cannot deny you coverage based on a preexisting condition.
Premium tax credits: Depending on your income and family size, you may qualify for financial assistance through the ACA exchange. Premium tax credits (subsidies) can reduce the amount of money you pay every month for your health insurance plan premiums.
Annual open enrollment: You can compare plans and choose coverage that aligns with your needs during the ACA exchange open enrollment period.
Short-term health insurance policies
Short-term health insurance policies typically cost less than traditional health plans, because they offer limited coverage. These policies may exclude coverage for prescription medications, preventive care, and preexisting conditions. But if you don’t want to wait until open enrollment to sign up for a health plan, short-term health insurance policies can be beneficial.
You can purchase a short-term health plan during any time of the year in most states. The application process is quick, and sometimes it takes just a day to get approved. Depending on the state you live in, you can likely buy a plan that lasts anywhere from 1 to 12 months.
Medicaid
If you are just starting a business and have limited income, you may be eligible to apply for Medicaid. Medicaid provides free or low-cost health insurance coverage to eligible individuals and families. The requirements vary by state, so it’s important to review your state’s program, understand the eligibility requirements, and apply if you meet the criteria.
If you have children, the likelihood of you qualifying for Medicaid may be higher. Medicaid programs consider family size and household income when determining your need and eligibility.
COBRA coverage
Depending on your circumstances, you may qualify for Consolidated Omnibus Budget Reconciliation Act (COBRA) continuation coverage. COBRA allows you to temporarily continue your group health insurance coverage from your previous job. But you’ll be responsible for 100% of your COBRA premiums, plus a 2% administrative fee because your employer is no longer splitting the insurance premiums with you.
Associations
Some professional associations offer group health insurance plans that self-employed individuals can join. As a member of the association, you’ll typically get access to better rates and coverage options than you would if you were trying to buy health insurance on your own.
Check with your state insurance department to see if association health plans are allowed and available where you live.
Parent, spouse, or domestic partner’s health plan
If your parent, spouse, or domestic partner is covered through their employer, they might have the option to add you to their health insurance plan. But this depends on the terms of the policy and what type of coverage it offers.
How do I handle my existing health insurance if I’m self-employed and get offered coverage through an employer?
If you already have health coverage as a self-employed person and you get offered benefits through an employer, you do not have to keep your existing policy. You can go ahead and enroll in the employer’s health insurance plan. But there may be a waiting period of up to 90 days. So if you have coverage through the ACA exchange, you can end your health plan when your new coverage starts.
Self-employed insurance costs and how to save
It’s important to compare health insurance plans to determine what works best for your needs and budget. If you’re looking for ways to save money on coverage, here are a few strategies to consider:
Use an HSA. You can open a health savings account (HSA) on your own if you are self-employed and are enrolled in a qualified high-deductible health plan (HDHP). You can deduct the money you contribute to your account on your tax return and pay for qualified medical expenses tax-free. You can also withdraw any money in your HSA account that you’ve contributed in the past to pay for qualified medical expenses. If you invest the money in your HSA, the earnings in the account are not taxed.
Take a tax deduction if you qualify. Regardless of the health plan you choose, you may be eligible to deduct what you pay for premiums on your tax return. The self-employed health insurance deduction allows eligible individuals to deduct these costs, which are applied against your adjusted gross income. This reduces your taxable income, which means more money in your pocket. And these deductions are available even if you take the standard deduction, as long as your business has a profit.
Review your health insurance bills. Sometimes, medical bills contain errors, so it’s always a good idea to review charges. If you notice duplicate charges, inaccurate coding for services, erroneous charges, or anything else that doesn’t look right, you should contact your provider to get a better understanding of the bill. If your provider refuses to address the situation, you can seek the help of a consumer assistance program or advocate.
Ask about discounts. Keep in mind that hospitals sometimes provide financial assistance programs based on income. And there are patient assistance programs (PAPs) offered by pharmaceutical companies, nonprofits, and government agencies that you may be able to take advantage of. For a healthcare bill, you can ask for a discount if you pay up front. Or you can try to lower your immediate costs by paying your bill in installments.
Review premium tax subsidies for ACA policies. Depending on your estimated income, you may qualify for tax subsidies through the ACA exchange. For example, the premium tax credit (PTC) is a refundable credit that can reduce what you pay in premiums, even before you file your tax return. Since the credit is based on your income, you will have to report any changes to your income during the year. If not, you may have to pay back some of the tax subsidies when you file your return.
The bottom line
If you’re self-employed, finding the right policy takes time. But it’s worth it to know that you are covered.
When looking for a plan, make sure you consider your healthcare needs, coverage costs, and the type of healthcare providers you need to see. Depending on your income and needs, you may be able to qualify for Medicaid or an Affordable Care Act (ACA) marketplace plan.
Why trust our experts?
References
CMS.gov. (n.d.). How to check your bill for errors. Centers for Medicare & Medicaid Services.
CMS.gov. (2023). COBRA continuation coverage questions and answers. Centers for Medicare & Medicaid Services.
HealthCare.gov. (n.d.). Health benefits and coverage.
Healthcare.gov. (n.d.). How insurance companies set health premiums.
