Being self-employed gives you the freedom and flexibility to set your own hours, work at your own pace and be your own boss. Unfortunately, self-employment also means lack of a steady income, no sick or vacation days, and no employer-provided health benefits. The federal government requires that everyone have health insurance or face an IRS penalty, even those who work for themselves. Finding affordable health insurance as an independent contractor can be difficult, but there are options available.
Private Individual Coverage
Whether you buy a plan on a state or federal marketplace, or you purchase one through an agent, broker or directly through a health insurance carrier, private health insurance is your best bet for full major medical coverage as a self-employed person. If you’ve got health problems, a chronic medical condition or plan to get pregnant soon, then you’ll want to explore your options on and off the marketplace for major medical. Plans are categorized into four metal tiers:
- Bronze – This plan has the lowest monthly premium but higher costs when you do access care. They may have high deductibles and high co-payments which means more out-of-pocket costs.
- Silver – The monthly premiums for this plan are higher but the co-payments and deductibles are lower than the Bronze plan.
- Gold – The monthly premiums are high but the deductibles and co-payments are fairly low.
- Platinum – These plans have the highest monthly premiums but very low costs when you access care. Deductibles are low so your plan begins paying sooner than with other plans.
You may qualify for cost assistance on the marketplace as well. Only plans purchased via the marketplace – and ones you buy through a broker count as long as they’re sold on the ACA/Obamacare exchanges – grant you access to tax subsidies that reduce your monthly premium. Earnings can vary when you’re self-employed, so if you’ve had a slow year and expect to have another one, then check out the marketplace in your state for affordable options.
Catastrophic Health Plans
If you are under 30, you may be able to select a catastrophic health plan. These plans have very low monthly premiums but only cover serious illnesses or injuries. They do not cover routine medical care and you must pay for those services out-of-pocket. You cannot use tax credits to reduce your cost and deductibles are high. In 2017, the deductible for a catastrophic plan was $7,150. The plans cover the ten essential health benefits of other Affordable Care Act (ACA) approved plans and do cover some preventative services. You may also visit your primary care physician three times each year even before you meet your deductible. If you are signing up for insurance under the marketplace, the option for catastrophic plans will be displayed if you are eligible.
Short Term Plans
Short term plans are available in all states excluding New Jersey, New York, Massachusetts, Rhode Island and Vermont who do not currently offer them. Up until 2017, short-term plans were defined as plans with a duration of less than one year while some states shortened the plan limits to six months. In 2016, a new rule was issued by the Department of Health and Human Services that limited short-term plans to less than three months as of January 2017. The reasoning was that short-term plans were not meant to be permanent health insurance but as a stop-gap measure before another plan starts, such as after a job loss. The plans have significantly lower premiums. For example, a family of four in Colorado could expect to pay $1,190 per month for health insurance on the exchange with an estimated out-of-pocket cost of $14,700 per year. If the same family purchased a short-term policy, their premiums could be between $100 and $500 per month depending on the coverage they chose. Short-term plans are not as comprehensive as traditional marketplace plans and they do not offer the same protections. You can be denied coverage for a pre-existing condition, for example. Because the plans do not meet the ACA requirements, they also do not protect you from the IRS penalty at the end of the year. Some experts believe that the Trump administration may eliminate restrictions on short-term policies, although that has not occurred yet.
Ancillary Products
One way to get better coverage at a lower cost is to choose a plan with a lower premium and add ancillary coverage. For example, a Silver plan for a 30-year old has an average cost of $364 per month with a deductible of $3,572. A Bronze plan would be approximately $311 with a $6,092 deductible. By purchasing the Bronze plan and adding critical illness, hospital indemnity and accident insurance with an average premium of $33 per month, you could have better coverage for $20 less per month. In addition, because the ancillary products could offset the deductible, you could actually see better benefits for less out-of-pocket expense overall.
Membership Organizations
You may also be able to purchase health insurance at lower costs through membership organizations. Your local Chamber of Commerce may offer health insurance options that allows you to purchase insurance at a group rate rather than an individual rate. You may also find health insurance through unions, alumni associations and professional organizations. You must be a member of the organization, so it is important to take into consideration the cost of membership as well. The National Association for the Self-Employed (NASE) offers several different options for health insurance, including health, supplemental health, dental, critical illness, prescription and vision benefits that members may access. The insurance is offered through several affiliates at affordable rates for members who pay an average $120 per year in membership fees. There are also student and veteran rates available.
Health Savings Account (HSA)
Another option you have if you are self-employed is to use a Health Savings Account (HSA). An HSA allows you to place money in an account set aside for healthcare expenses. For 2017, you can put up to $3,400 for yourself or $6,750 for your family into an HSA. If you are over 55, you can contribute up to $1,000 additional, known as “catch-up contributions.” Interest earned on the account is tax free and the amount you place in the account can be used as a tax deduction. You can make any number of withdrawals from the account for qualified medical expenses. Unlike a Flexible Savings Account (FSA) provided by an employer, you are not required to use all the funds by the end of the year. Any amounts left in the account can be rolled over to be used in future years. Suppose you were able to put $100 per month in an HSA and, over five years, you used $400 per year of the funds for medical costs. At the end of five years, your HSA would be valued at $4,641.53 and after 10 years, $10,585.43. This does include the tax savings on the contribution and earnings.
The federal government still requires everyone to have health insurance or face an IRS penalty. However, there are additional risks to not having health insurance. Medical expenses are the number one cause of bankruptcy in the United States with more than two million people each year filing due to their inability to pay high medical bills. Even if they do not file bankruptcy, 20 percent of the population admits to struggling to pay medical bills. If you or a family member suffers a critical illness or injury and you are not covered by health insurance, the costs can be astronomical. Therefore, it is critical to cover yourself and your family, not only to avoid IRS penalties, but to protect your financial well-being. To find a plan that works for you and your budget, you can shop plans online for free at healthnetwork.com
