In 2014, CareerBuilder released a report estimating that there were about 10 million self-employed workers in the United States, which represents 6.6 percent of all jobs nationwide. Though that number is down from previous estimates, the total tally of self-employed individuals indicates that many Americans across the country don’t fall into a convenient job category. This can be tough if you want to apply for health insurance. Before the Affordable Care Act became law, entrepreneurs and small business owners had few options for getting covered. They might have been able to enroll on a spouse’s plan, sign up for expensive private coverage or apply for state programs like Medicaid depending on income level.
Now, self-employed workers have better options for obtaining more affordable health insurance. The ACA has impacted millions of Americans since it was first signed into law. Access to preventive care, prescription medication and low-cost insurance options have allowed many people to lead healthier lives. If you work for yourself, then the new law has also changed the way that you think about health insurance. Below, we’ll discuss some of the important changes that affect self-employed workers.
Employer vs. Sole Proprietor
Under the ACA, employers who staff more than 50 full-time workers have to offer health insurance to their employees. Smaller companies can also get tax credits for offering insurance, but they’re not required by law to provide insurance. If you run a business that employs people to work for you, then you’re considered an employer. Contracted workers are different. If you occasionally hire contract workers to help with a busy workload, then you may not qualify as an employer.
Sole proprietors, on the other hand, are self-employed. If you run a business in which you’re the sole worker, then you file taxes as an individual and report income as a sole proprietorship. The ACA requires most individuals in America to obtain health insurance or pay a penalty fee when they file their taxes. In 2016, the fee is the greater of 2.5 percent of your taxable income or $695.
The Individual Marketplaces
Because you’re considered an individual for tax and insurance purposes, you can buy health insurance using a state or federal marketplace depending on where you live. Right now, 13 states and the District of Columbia manage their own state exchanges while the rest of the country utilizes the federal site at HealthCare.gov. Exchanges afford several benefits. If you are a small business owner with under 50 employees, you can use the SHOP (Small Business Health Options Program) to find a group plan or you can work with an agent or broker to find a suitable plan in the private marketplace.
During the initial enrollment period in 2014, insurers were hesitant to get on board because they weren’t sure how well the marketplaces would do. In 2015, insurance carriers realized that the marketplaces offer the perfect chance to compete for consumers’ attention. People who signed up for health insurance during the 2015 enrollment season could choose from an average of about 40 plans delivered by top carriers nationwide. Under Obamacare, qualified health insurance plans include ten essential benefits such as maternity care, rehabilitative equipment and care, prescription drugs and mental health care. You also can’t be denied coverage based on a pre-existing condition, and insurers can’t dismiss you arbitrarily from a plan without notice.
The marketplace sets up its plans in four tiered levels ranging from bronze to platinum. Bronze plans cost less per month but offer less coverage. Platinum plans include higher premium costs but cover a larger percentage of care.
One of the largest barriers to buying health insurance as a self-employed person is cost. For decades, those who worked on their own may not have had any affordable options for coverage. Under the ACA, federal subsidies exist to help low- to moderate-income individuals pay their premiums. You can apply for these advance premium tax credits only on the marketplace and only if you meet the income qualifications. If you earn between 100 and 400 percent of the federal poverty limit, then you’ll most likely qualify for financial assistance.
It’s important to note that you’ll need to estimate your income as accurately as possible for the next year in order to apply for the tax credits. Self-employed earnings aren’t easy to estimate, but try to submit as close a figure as you can. If you overestimate your income, then the government will give you money back on your tax return. If you underestimate your income, then you may owe a portion of your subsidy back to the government. Calculating the correct figures up front will save you the headache of an adjusted tax return.
The 2015 enrollment season has ended for the year, but you may still qualify for a special enrollment period if you meet certain conditions. Visit HealthCare.gov for more information on how to sign up. The open enrollment period for 2016 begins Nov. 1 and runs through Jan. 31 of next year.