The Best Health Insurance Options for Self-Employment

In today’s gig economy, self-employment is becoming more attractive for people seeking more freedom and flexibility in their jobs.

While self-employment offers a number of advantages, one major drawback to leaving your corporate job is health insurance coverage.

The majority of Americans obtain health insurance coverage through their employer. Self-employed individuals are on their own to find coverage.

This article explores alternatives for obtaining healthcare coverage if you are self-employed.

Who is Self-Employed?

According to the U.S. Internal Revenue Service, you’re self-employed if your business earns income and you do not have employees. You are self-employed if any of the following apply:

• Sole proprietor or independent contractor in a trade or business (e,g., plumbing contractor, freelance designer)
• In business for yourself including a part-time business (e.g., marketing consulting agency, calligrapher).
• Member of a partnership in a trade or business.

Is Health Insurance Mandatory?

The Affordable Care Act (ACA) initially contained a federal mandate requiring all Americans to have health insurance coverage or pay a penalty. Beginning in 2019, the federal mandate is no longer in effect.  

Some states still require all residents to have health insurance coverage. If you live in one of the following states you may pay a penalty for not having coverage:

• California
• District of Columbia
• Massachusetts
• New Jersey
• Rhode Island
• Vermont

Even if you are not required to have health insurance, it’s recommended for a few reasons:

1. High Out-of-Pocket Costs – Health insurance provides a safety net for you and your family. If you get sick and can’t work, your out-of-pocket medical expenses would be costly. Health insurance plans usually have out-of-pocket maximums.
2. Tax Benefit – You can take a self-employed health insurance deduction if you made a profit in the tax year. The deduction is an adjustment to income for premiums you paid on health insurance coverage for you and any family members on your plan. You may also be able to expense medical expenses exceeding $7.5% of adjusted gross income.

What Health Insurance Options are Available for Self-Employed Individuals?

If you are self-employed, it’s extremely risky – and costly – to go without health insurance coverage especially if you have a family. Consider the following options when evaluating the coverage that best fits your needs:

Coverage from a Family Member

If a spouse or parent (for adults under age 26) has healthcare coverage from their employer, they can add you to their plan. Many companies also allow domestic partners to qualify as family members if you live together.

While employers typically cover a percentage of an employee’s premium, the premium for family members is not covered. Depending on your income, another insurance option many be more affordable.

Federal and State Marketplaces

The Health Insurance Marketplace (“Marketplace” or “exchange”) was established under the ACA to enable individuals and families to obtain affordable health insurance.  

Marketplace plans are available for independent contractors, freelancers or other types of independent workers with no employees.

The federal government operates the Marketplace but some states operate their own marketplace: California, Colorado, Connecticut, District of Columbia, Idaho, Maryland, Massachusetts, Minnesota, Nevada, New York, Rhode Island, Vermont, and Washington. If your state is listed, you need to apply to your state’s exchange.

After applying on the Marketplace or your state exchange, you will be informed if you qualify for tax credits towards your healthcare premium. Tax credits are based on your income for the upcoming plan year and the size of your household. Because Marketplace savings are based on net income for the next year, you need to estimate your net self-employment income for the upcoming plan year. 

The Marketplace offers several different categories of health plans. Categories are determined by how you and the plan split costs. For example, if you get a plan with a higher deductible, your premium will be lower and you would be responsible for any costs until you meet the deductible. 

Private Insurance

Most private health insurers offer individual healthcare plans you can purchase directly from them as well as through a broker or insurance agent. 

The monthly premiums are likely to be more expensive than Marketplace plans especially if you qualify for tax credits. Before making a decision, compare the costs for both options before making a decision. 

Medicaid

If you’re self-employed or starting a solo business with little income: You’ll probably qualify for low-cost insurance or free or low-cost coverage through Medicaid. When your income increases, you can adjust or change your coverage.

Medicaid provides health insurance coverage in all 50 states for certain low-income individuals, families, pregnant women, the elderly and people with disabilities. Eligibility for Medicaid differs between states and is but you qualify for Medicaid based on income, household size, disability, family status, and other factors.

Some states expanded Medicaid to offer health coverage to adults below a certain income level (133% below the poverty level).

Medicare

If you’re at least 65 years old or disabled, you can get health coverage through Medicare, even if you’re still working. This program has several parts, each with its own costs and types of coverage.

Associations 

Some professional associations such as the Affiliated Workers Association (AWA) the National Association for Self-Employed (NASE) or the Freelancer’s Union offer health insurance coverage to their members. 

Check to see if any organization you belong to offers health insurance coverage. Possible groups include professional organizations, alumni associations, and your local chamber of commerce.

To get insurance through an association, you need to pay a membership fee. Make sure you consider the fee when comparing your options.

COBRA

If you recently left a full-time job with employer-provided insurance coverage, you can temporarily remain on your former employer’s plan for up to 18 months in accordance with the Consolidated Omnibus Budget Reconciliation Act (COBRA). 

The coverage may be the same as you had but your employer will no longer be subsidizing it so you will have to pay a lot more out-of-pocket. Your employer should provide you with COBRA information when you leave your position.

Short-Term Insurance

Short-term insurance is only an option if you missed your open enrollment period and need to fill in a gap in coverage for up to 12 months. The premiums may seem low but they are more costly than you think. Short-term insurance plans do not have to meet ACA standards and you could be denied coverage for a pre-existing condition. Mental health coverage and prescriptions may not be covered either. 

Get Quotes Today

Our licensed health insurance agents are ready to help walk you through your options. No matter your unique situation, our agents have the experience to get you the coverage you need today, at the right price.