Health Insurance

Health Insurance Options for Self-Employed Individuals

Health insurance for self-employed individuals does not have to be confusing. Learn the common types of coverage that are available to self-employed individuals and the basic costs of coverage so you can navigate the entire process with confidence.

Health Insurance Options for Self Employed Individuals

The Open Enrollment Period for health insurance is here:

November 1 – January 15

Enroll in a new health plan or reevaluate your current coverage to see if it’s still a good fit for you. You can make the following changes during this period:

  • Enroll in a health insurance plan for the first time
  • Change health insurance plans
  • Change who else is covered by your current plan

 

Still have questions? Learn more about the health insurance Open Enrollment Period.

If you are self-employed, shopping for a health insurance policy can be overwhelming and confusing. There are a wide variety of factors to consider, including the types of coverage you need, whether you have pre-existing conditions that may impact your coverage, and how much you can afford.

With healthcare prices rising and the American Rescue Plan (ARP) making health insurance more affordable and accessible, many people in the U.S. are choosing to protect themselves with health insurance coverage. In fact, since early 2021, more than 4.6 million Americans have newly obtained health care coverage. 

Making sure you are covered is well worth the effort. Health insurance can help offset the cost of unforeseen medical emergencies as well as expenses related to chronic medical conditions and basic health maintenance, such as doctor’s appointments, vaccinations, and proactive treatment.

Learn the important information you need about health insurance for self-employed individuals so you can make sure you get the right coverage for you and your family.

Do Self-employed People Have to Have Health Insurance?

Self-employed people may need to have health insurance depending on their state’s requirements. The original Affordable Care Act (ACA), also known as “Obamacare,” required every individual to have health insurance coverage or pay a tax penalty. As of 2019, the penalty no longer applies at the federal level. However, some states still mandate health insurance coverage. In 2022, these states and districts are:

  • California
  • Massachusetts
  • New Jersey
  • Rhode Island
  • Vermont
  • Washington, D.C.

If you live in any of the above states and do not have health insurance coverage, you may be subject to a penalty.

Self Employment vs. Owning a Business

When evaluating your options for health insurance, it is important to understand whether you should be classified as self employed or as a business owner. A simple way to tell the difference is to look at your role in the business. If you are a business owner, you typically run a business and have people working for you. On the other hand, self-employed individuals are typically sole proprietors or independent contractors.

Business owners who have employees may be able to access health insurance plans through the Small Business Health Options Program (SHOP). This gives small employers the ability to get flexible health and dental insurance for their employees. It is also important to note that certain business owners may be required to provide healthcare coverage to their employees. This typically includes businesses that have 50 or more full-time or full-time-equivalent employees.

Self-employed individuals are not eligible to purchase policies through SHOP. Instead, they must purchase individual or family plans. 

Self-employed Health Insurance Options

There are several different health insurance options for self-employed individuals. It may be helpful to compare each of the following to determine whether you are eligible and how it fits into your budget and coverage needs.

Private, Individual Health Insurance

The Health Insurance Marketplace for individuals and families is a popular resource for purchasing health insurance for independent contractors, people who run their own businesses, and individuals who are self employed with no employees.

There are several benefits to purchasing an individual plan from the Marketplace. Every plan offered in the Marketplace covers the same 10 categories of essential health benefits and cannot exclude treatment for pre-existing conditions. There are also a variety of different premium and cost-sharing options to choose from, giving self-employed individuals the ability to select a plan that fits their budget.

Keep in mind that purchasing your own plan means you will not have the same cost-sharing benefit as an employee who joins their employer’s group health plan. Employers typically cover a portion of the premium cost for employees. If you are self-employed, you are responsible for paying the entire premium yourself.

Group Health Insurance Through Your Spouse’s Plan

If your spouse works full time for an employer that offers group health insurance, having them enroll and add you to their plan may be an option. This can be beneficial, since group plans usually cost significantly less than individual plans. In some cases, your spouse’s employer may even cover a portion of your premium, although it may be less than they cover for your spouse. Depending on your income, this may or may not be less expensive than purchasing your own plan, so it is a good idea to explore both options.

Health Insurance Through Your Parent’s Plan

Under the provisions of the ACA, every insurance company that offers child coverage must make it available to children until they turn 26. For self-employed individuals under this age, it may be possible to get health insurance coverage through a parent’s insurance plan. 

Keep in mind that this option ends once you reach age 26, at which time you will need to find your own coverage. In addition, your parents may receive notifications regarding the medical care you receive, so if privacy is a concern, this may not be the right option for you.

Medicaid

If your income is low and meets your state’s eligibility criteria, you may be able to get health coverage through Medicaid. Although this program was established by federal law, each state runs its own Medicaid program, meaning that benefits may vary from state to state. 

If you visit the Health Insurance Marketplace and enter your location and income, it will tell you whether you are eligible for Medicaid coverage. In many states, you need to have children and an income below the poverty level to be eligible. In 2020, the median income limit for a family of three was $8,905.

Medicare

If you have reached the age of 65 or you are disabled, you may be eligible for coverage through Medicare, even if you are still self employed. The Medicare program consists of Parts A and B. Each part offers a specific type of coverage and has its own costs. Depending on your Marketplace options, the cost of Medicare may be a more affordable option. Those who are eligible for Medicare may even be automatically enrolled, or can enroll manually during their Initial Enrollment Period.

Temporary Insurance Coverage

Additional options to consider include COBRA and short-term insurance. The Consolidated Omnibus Budget Reconciliation Act (COBRA) is a program that allows workers and their families to access continued health insurance coverage for a limited period after a voluntary or involuntary job loss or other specific events. 

If you have left your job or were terminated and are now self employed, you may be able to access COBRA coverage. However, keep in mind that if you qualify for COBRA, you may be required to pay up to 102% of the full premium cost. In addition, this coverage only extends for a limited period of 18 to 36 months.

In some states, you may be able to get short-term health insurance to cover your gap in permanent coverage. These plans typically provide coverage for up to 12 months. However, some states tightly regulate short-term health insurance plans, and others do not allow them at all, so it is important to make sure this option is available in your area if you are interested.

While neither COBRA nor short-term health insurance is a viable solution for your long-term health insurance needs, each could provide temporary coverage to help you pay your healthcare expenses while you search for a traditional health insurance plan or wait for the next enrollment period.

How to Get Health Insurance When You’re Self-employed

When it is time to start exploring your health insurance options, you may decide to visit the Health Insurance Marketplace or contact a trusted insurance agent who can walk you through the process. 

Unless you qualify for a Special Enrollment Period, you can only enroll in a Marketplace plan during the Open Enrollment Period. The 2023 open enrollment period for most states is now active, running from Nov. 1, 2022 through to Jan. 15, 2023. 

As you compare your plan options, keep in mind that each plan offered through the Marketplace must cover the following 10 categories of essential health benefits:

  • Hospitalization, such as overnight stays and surgery
  • Emergency services
  • Ambulatory patient services, or outpatient care
  • Prescription drugs
  • Pregnancy, maternity, and newborn care
  • Laboratory services
  • Mental health and substance use disorder services
  • Pediatric services including oral and vision care
  • Rehabilitative and habilitative services and devices
  • Preventative and wellness services and chronic disease management

In addition, every ACA plan must provide coverage for breastfeeding needs and birth control.

Marketplace plans are also divided into metal tiers: Bronze, Silver, Gold, and Platinum. These categories are assigned based on the percentage of costs you are required to cover, not the quality of care.

Plans are also assigned an overall quality rating ranging from 1 to 5 stars, with 5 being the highest. The ratings are based on the plan’s administration, medical care, and member experiences. This system offers individuals an easy way to compare plans based on quality.

The Cost of Health Insurance for Self-employed Individuals

When comparing your options, it is important to be aware of the different cost components you may be responsible for paying out of pocket, including:

  • Premiums: This is the monthly payment you make to the insurance company in exchange for coverage. You are responsible for this payment whether you use the coverage or not.
  • Deductibles: This refers to the amount you need to pay for your covered medical services or medications before your insurance plan starts to pay. For example, if you have a $1,000 medical bill and a $200 deductible, you are responsible for paying the $200 before your insurance pays anything.
  • Copays: This is a fixed fee that partially pays for your medical services. For example, you may have a $20 copay each time you visit a doctor.
  • Coinsurance: This is the percentage of your treatment cost that you are responsible for paying. For example, you may have to pay 20% of your hospital bill after you pay your deductible.
  • Out-of-pocket maximum: This is a cap on the amount you have to pay for covered services during the plan year. After you spend this amount on deductibles, coinsurance, and copayments, your health insurance pays 100% of any additional expenses, excluding your premium.
  • Out-of-network costs: These are extra costs you pay when you receive medical care from a provider who is not within your insurance company’s network of pre-approved providers.

Note that individual health plans typically cost more than employer-sponsored plans. 

In some cases, you may be eligible to receive discounts on your individual health plans. This may include the Advanced Premium Tax Credit (APTIC) or cost-sharing reductions (CSR). 

The APTC is a tax credit that is given to households with an annual income that falls below the maximum threshold. You can take the credit in advance to lower your monthly health insurance premium. The amount of your credit is based on your estimated annual income, and you have the option to use the entire credit or part of it to offset your monthly premiums.

At the end of the year, if you have taken a higher credit than you are eligible for, you will pay back the excess when you file your tax return. If you took less, you would receive the difference.

Cost-sharing reductions are another benefit based on your household’s annual income. They help you save on your copayments, coinsurance, and deductibles and may also lower your out-of-pocket maximum. To be eligible for this benefit, also known as “extra savings,” you must fall below the maximum income threshold and choose a Silver-level plan.

Pick Your Individual Health Plan and Enroll

If you are planning to purchase health insurance through the Marketplace, you may need to wait for the Open Enrollment Period before you can enroll in a plan. 

If you sign up during open enrollment by Dec. 15 and make your first premium by the due date, your new coverage typically starts on Jan. 1. If you sign up after Dec. 15, your coverage typically begins on February 1. However, this may vary from year to year and may also be different depending on your state.  

Outside of the Open Enrollment Period, you may be eligible for a Special Enrollment Period if you have had a recent life event, such as getting married, having a baby, moving, or losing other coverage. During special enrollment periods, the start date depends on the triggering event. For example, when you enroll after getting married and you choose your plan by the last day of the month, your coverage typically starts on the first day of the next month. If the triggering event is the birth or adoption of a child or placing a child in foster care, coverage can start on the day of the event, even if you enroll up to 60 days after the event occurred.