Health Insurance Options for Independent Contractors


December 4, 2017

Looking for Insurance? How to Get Covered as an Independent Contractor

Freelancers made up over a third of the U.S. workforce in 2014, and that percentage is likely to grow as workers branch out into independent territory. Even people who are working in brick-and-mortar businesses, like hairdressers, tattoo artists, taxi drivers or baristas, may work on a non-employment contracted basis rather than a salaried one. Independent contractors enjoy the freedom and flexibility that contract work provides them, but it’s not always easy being free. There can be a tremendous amount of competition, your salary can vary greatly from week-to-week and customers can be demanding. On top of this, you need to find health insurance on your own without the comfort of an employer-based group plan.

Finding affordable medical coverage can be especially difficult for independent contractors. Premiums for private coverage are typically high, or there are expensive coinsurance costs to cover out of pocket. Even shopping for something as basic as a dental plan can feel overwhelming. Lucky for you, there are options for major medical and non-major medical insurance to keep your health in check and your wallet happy.

Short-Term Health Coverage

You may be able to piece together short-term healthcare policies at a lower cost than a comprehensive major medical plan. Short-term health plans are designed to cover gaps in your insurance. They don’t have the same protections as major medical policies under the Affordable Care Act, they may not cover prescriptions or any of the essential benefits mandated by Obamacare, and they can be limited based on medical underwriting. In other words, you’ll need to be in good health to sign up for one. Short-term plans may also have annual and/or lifetime caps on benefits.

On the plus side, these policies also tend to have lower premiums than traditional health plans. Premiums for individuals average to around $110 a month compared to an average cost of over $300 per month for major medical. You get what you pay for when it comes to health insurance, but that could work out well for you if you have few medical needs and just want something in place for unexpected accidents or illnesses.

Note that short term plans do not count as minimum essential coverage under the ACA – for now. President Trump and Republicans in Congress are seeking to change that. But for now, temporary coverage won’t keep you from paying the penalty fee for not having health insurance.

Paying an IRS penalty fee for not having health insurance isn’t the only thing to worry about if you choose a short-term plan. With this kind of insurance, you may not have coverage for common medical problems, which might land you with medical bills that you can’t afford to pay. The Department of Health and Human Services proposed new rules regarding short-term plans that require insurers to notify consumers about any fine print that might affect them. The regulations also prevent consumers from remaining on short-term policies for longer than three months.

Group or Association Plan

If you’re employed along with other independent contractors under the same business, like in a hair salon or tattoo parlor, you may be able to negotiate group rates if you pool your resources. Group plans are often much less expensive than independent plans and are limited by the federal government regarding restrictions they can place on pre-existing conditions. You may also be able to obtain group coverage through your local Chamber of Commerce or business associations like the Rotary or Lion Club.

Healthcare Sharing Ministry

Members of the clergy working as independent contractors may be able to obtain health insurance through a healthcare sharing ministry. Under this type of plan, you pay into a shared fund that pays both your share of group insurance as well as a contribution toward others who use the program. Some healthcare sharing ministry policies are available to members of particular churches, religious groups or affiliations as well. These policies also offer some ancillary benefits, like dental and vision, at much lower costs than you would find through the Obamacare exchanges.

Small Business Plans

A small business plan may be available if your contracting company has a partner or a part-time assistant. In some states, you can purchase a small business plan even if you are the only employee in your company. Small business plans are much like group plans and must follow the same regulations as other group plans, including restrictions on denials due to pre-existing conditions.

Individual Plans

Under Obamacare, you have the option as an individual to purchase a health plan from a federal or state marketplace during open enrollment each year. For 2018 coverage, open enrollment ends on December 15, 2017 in most states. Your income plays a big role in what you’ll pay for premiums on ACA exchanges because tax credits are available in the marketplace to offset the cost of health insurance for low- to moderate-income Americans. This also means that if you’re earning a significant amount of income as an independent contractor, your premiums could be higher on the exchanges because you won’t qualify for subsidies to reduce the cost.

Health Savings Account (HSA)

A Health Savings Account (HSA) allows you to place money in an account that you can use to pay for qualifying medical expenses. In some cases, you are issued a debit card that you use to pay for co-payments, prescriptions or other costs. Even though it’s not technically insurance since you need to pair an HSA with a high-deductible health plan, an HSA is worth mentioning. Because it’s your account, you control how the funds are spent, although you must use the money for qualified medical expenses. This is similar to Flexible Spending Accounts offered by employers except that you don’t have to spend all the funds by the end of the year. Money can remain in the account until you need to use it, accruing interest as well. And since using an HSA is the same as paying with cash, you may also be able to negotiate discounts with your providers to save more money on out-of-pocket costs.

Ancillary Coverage

Medical costs can be significant even if you do have major medical insurance. If you anticipate needing a lot of care or just want some extra padding in case something goes awry, then consider adding ancillary products to your healthcare policy. These might include dental, hospital indemnity or critical illness protection. As a self-employed worker, you’ll want to take extra precautions since you don’t have the luxury of paid time off or sick leave. Ancillary benefits like accident and critical illness coverage pay lump-sum benefits that can be used for anything, such as making mortgage payments while you’re in the hospital and out of work.

While you’re shopping for health insurance, make sure to read the fine print and know what you’re signing up for. No matter how you earn a living, you can find affordable alternatives to major medical coverage and still put some protections in place for your peace of mind. Compare your options and find a plan that meets your needs and budget.