Health insurance options for self-employed
Individual health insurance is one way for self-employed people to get health coverage.
You can enroll in an Affordable Care Act (ACA) marketplace plan or an individual health plan outside the marketplace. People can enroll during the annual open enrollment period, which runs from Nov. 1 to Dec. 15 in most states. You can sign up for an individual time during other parts of the year, but only if you have a qualifying life event, such as getting married, losing other coverage or having a baby.
One benefit of a marketplace plan is that you may qualify for tax credits to offset some of your health insurance costs. These cost-sharing reductions are based on your income and help lower your:
- Deductible
- Copayments
- Coinsurance
- Out-of-pocket costs
To qualify for subsidies, you must have a household income of under 400% of the federal poverty level, which is slightly more than $50,000 for an individual. Find out more about ACA plan subsidies.
If you don’t qualify for subsidies, you may want to get a plan outside of the ACA marketplace. If you go this route, you may have more health plan options, but you also won’t have the marketplace website’s help. The marketplace makes it easier to compare available plans. If you shop outside of the marketplace, you’ll have to check with individual insurers. You can also work with an independent insurance broker to help you find a plan.
"The premiums for the health insurance plans are identical whether using a broker or doing it yourself, so it makes sense to have a professional help you with the decision and enrollment. Even while using marketplace coverage, you can use a local broker as long as they have completed any required training by the carrier and exchange," says Michael Sheeran, CFP, of Glenn Insurance, a family-owned, independent insurance agency in New Jersey.
An agent can help you determine if you're eligible for a specific plan and select an insurance carrier that matches your needs and budget.
"They will evaluate the network, premiums, copays and any other extras that the insurance carrier offers as part of their program. These will include things like telehealth or discounts for working out," Sheeran says.
You can do all this legwork on your own, as well. Keep in mind that some carriers may not offer individual coverage and only offer group plans for self-employed small business owners who have employees.
Association health plans (AHPs) are another option. AHPs allow small employers, self-employed people and groups to form an association to buy health insurance. Banding together gives them more buying power, which can lower health insurance costs.
If you belong to an industry group, you may get health insurance through a group plan offered to members. For example, the Writers Guild of America, the National Association for the Self-Employed and the Small Business Service Bureau (SBSB) offer health insurance as one of their member benefits.
Members still have to pay the monthly premium, copays and other costs associated with their respective health plan. However, getting their coverage through an association allows them to access discounted health plans at group rates.
Alumni associations, unions and other professional organizations may also offer group health insurance, so check with different organizations you're affiliated with or could join to see if they work with an insurance carrier to offer discounted plans.
The average cost for self-employed health insurance
The cost of individual coverage and premiums vary.
Individual insurance plans have four metal tier levels that are based on price:
- Bronze
- Silver
- Gold
- Platinum
Bronze and Silver plans are high-deductible plans. They have the lowest premiums but the highest out-of-pocket costs for care. Most individual plan members have either a Bronze or Silver plan.
eHealth found that individuals who purchased a Bronze plan on the health insurance marketplace paid an average monthly premium of $448 without subsidies. Silver and Gold plans on the exchange have average premiums that range from $483 to $569 a month. Premiums for Platinum plans, which aren’t nearly as common as the other three tiers, average $732 a month.
Your self-employed health insurance cost -- whether you buy a marketplace plan or other private health insurance -- will vary based on all these factors and which plan you choose.
Health insurance for small businesses
Small businesses often have more health insurance options than self-employed people. Individual health plans are still an option, but you may also want to check into group health plans, self-funded plans and Health Savings Accounts (HSAs).
"A small business owner that is the sole employee will not be able to start a group plan until they hire and enroll at least one W2 employee that works at least 30 hours per week," Sheeran says. Meanwhile, self-employed people with no employees have plan choices that involve individual health plans on or off the ACA exchanges.
"As the business grows, they [small business owners] have more options with the number of plans they can offer and they can tailor their offerings to their employees' needs," Sheeran says. "For example, they can offer a HSA-qualified plan, plans that have national networks or plans that have lower prescription copays."Sheeran says small business owners can save money by using HSA-qualified plans. These plans are also called high-deductible health plans (HDHPs), which offer a higher deductible in exchange for a lower monthly premium.
HSAs allow small business owners and their employees to:
- Contribute money tax-free to an account
- Make tax-free withdrawals for qualified medical expenses
- Receive a tax deduction for their contributions
Small business owners also can use lower-cost Bronze marketplace plans and combine them with a health reimbursement arrangement (HRA). HRAs allow employers to provide funding for employees to use for qualified medical expenses up to a certain limit, Sheeran says.
"We have seen employers save well over 30% on their overall cost in insuring s employees with this strategy," he says.
Self-funded plans are another option. Self-funded plans allow small business owners to pay for employees' claims out-of-pocket as they occur. Going that route can help avoid the fixed cost of monthly premiums and potentially better control their business's healthcare costs. Small business owners can set aside money to pay employees' claims.
However, the potential risk is that your business may not be able to afford the cost of all the claims if employees get sick and use a lot of their health care coverage.
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Preferred-provider Organization (PPOs)
- Pay higher premiums with a lower deductible
- You have access to more providers, but pay much more for health insurance
- You don't want to choose a primary care physician
- You don't want to get a referral
- You want the ability to get out-of-network care
Find out more about the differences between plans
Health maintenance organization (HMO)
- Pay higher premiums with a lower deductible
- Restricted network of providers with lower premiums
- You want to choose a primary care physician
- You don't mind getting a referral
- You don't care about the ability to get out-of-network care
Find out more about the differences between plans
High-deductible health plans (HDHPs)
- Pay lower premiums with a higher deductible
Find out more about the differences between plans
Exclusive provider organization (EPO)
- Restricted network of providers with lower premiums
- You don't want to choose a primary care physician
- You don't want to get a referral
- You don't care about the ability to get out-of-network care
Find out more about the differences between plans
Learn more about individual insurance plans
Know more individual insurance / ACA
- Silver
- Bronze
Silver plans provide a good balance of monthly premiums with out-of-pocket costs. Coinsurance is 70% with a silver plan, meaning you will pay 30% of the costs after your deductible is met, up to the out-of-pocket limit. Silver plans are a good choice for people who are in generally good health but don't want high out-of-pocket costs if something goes wrong.
Bronze plans are a popular choice with those who value low monthly premiums and are willing to pay more when they need care. Coinsurance is set at 60%, meaning you will pay 40% if you do need care, up to the out-of-pocket limit. Bronze plans are good for those who don't expect to need many services outside of preventative care throughout the year.
Know more individual insurance / ACA
- Platinum
- Gold
ACA platinum plans have the highest monthly premiums, but the lowest out-of-pocket costs. You'll pay more monthly in return for lower deductibles, copays and coinsurance amounts. Coinsurance with platinum plans is 90%, which means you pay 10% after the deductible, up to your out-of-pocket limit. Platinum plans are good for those who anticipate a lot of medical needs throughout the year.
Gold plans cost a little less than platinum plans, and come with higher out-of-pocket costs. The coinsurance amount on a gold plan is 80%, which means you pay 20% after the deductible, up to your out-of-pocket limit. A gold plan is a good idea if you think you'll need a lot of care throughout the year, but don't want to pay platinum premiums.
Health insurance for freelancers
If you're a freelancer, your first and best option if you're married or in a domestic partnership is to get coverage through a spouse or partner’s employer-sponsored health plan, if available.
If that isn't an option, an individual plan or an AHP may be the best option. The benefit of enrolling in a marketplace plan is that you may qualify for subsidies, tax credits or cost-sharing reductions that reduce your out-of-pocket health care costs.
"Anyone who has the possibility of qualifying for a subsidy should enroll on the exchange," Sheeran says.
Just keep in mind the income thresholds for marketplace plans change slightly from year-to-year, so your ability to qualify for the subsidy and reap significant cost savings could differ every year depending on your self-employment income.
Signing up for an HDHP and opening an HSA is another option. The federal government defines a high deductible plan as any plan with at least a $1,400 deductible for an individual and $2,800 for a family plan.
The deductible is what you pay out of pocket before your health insurance begins paying for services. At that point, you pay coinsurance, which is the percentage you pay for health care services after you meet your deductible. Insurance picks up the rest. Typically, an insurance carrier will pay 80% of the covered services’ costs after you meet your deductible.
If you're healthy, don't have any chronic conditions and don't visit the doctor often, an HSA-qualified, high-deductible health plan may be more affordable than another private health insurance plan with a fixed monthly premium.
Whether you're a small business owner with employees or a sole proprietor, take the time to weigh all your options and the potential costs before you sign up for a health plan.
"There is certainly no one-size-fits-all option for any company, so it's important to work with someone knowledgeable in your local area that knows the advantages and disadvantages between the options," Sheeran says.
