What Are Some Health Coverage Options for Self-Employed Individuals?
Being self-employed has some major advantages. You have more flexibility with your schedule and the potential of earning a high income. Online services like Upwork, DoorDash, Uber, and Lyft also make self-employment easier. They provide a gig platform that connects service providers and customers on demand.
The flexibility also has its downsides. One of the biggest is the purchase of health insurance. Even with the reforms of the Affordable Care Act (ACA), the process remains challenging.
Below, we’ll break down health insurance coverage options for self-employed individuals. This will help you choose the best plan for your needs.
Which factors should I be looking for in a health insurance plan?
Before you purchase an insurance plan, you should assess your healthcare needs. This will help you determine the best plan for you.
If you do not expect high medical costs, then you may select a plan with a lower monthly premium and higher deductible. An example is a high deductible. For 2022, the IRS requires HDHP plans to have an annual deductible an annual deductible of at least $1,400 for an individual or $2,800 for a family. The annual out-of-pocket costs can’t exceed $7,050 for an individual or $14,100 for a family. These expenses can include deductibles, copayments, and coinsurance. Once you reach the annual limits, the insurance company pays for all the additional costs.
You can gain further savings by combining an HSA (health savings account) with an HDHP. For 2022, the maximum tax-deductible contributions are $3,650 for an individual and $7,300 for a family. You can use this to pay for eligible medical expenses, without having to pay taxes. The remaining funds can be carried forward to the following year. You can use these funds to invest in stocks, bonds, and mutual funds. These investments can help your healthcare fund grow tax-free.
While the cost of insurance is a key consideration, there are times when it makes sense to pay extra. Here are a few circumstances that may impact your insurance plan:
You are expecting a child.
You make frequent visits to your healthcare provider.
You need access to certain prescription drugs or treatments.
You need surgery.
You travel frequently.
Regardless of the plan, you may be eligible to deduct the full amount you pay for premiums. The self-employed health insurance deduction allows eligible individuals to deduct the cost of health insurance premiums on their tax returns. The deduction is applied against your adjusted gross income. This reduces your taxable income, which means more money in your pocket.
What if my spouse has health insurance through a job?
Most employer plans provide coverage for spouses. The costs are usually lower than the alternative plans. The reason is that the employer will often subsidize a major portion of the premiums. There may even be policies for vision and dental care.
Despite this, it’s important to compare plans anyway. Again, you or your family may have healthcare needs that the employer plan does not cover.
But if you select another plan, you will lose the tax subsidies and deductions that come with ACA policies.
What if I lose my job and become self-employed?
If you lose your job, you may be able to remain on your employer’s group policy for 18 to 36 months. You have 60 days to make the election. This is part of the COBRA (Consolidated Omnibus Budget Reconciliation Act) program. The insurance costs can be high because your employer will not provide any financial support. You are responsible for 100% of your COBRA premiums plus a 2% administrative fee.
No matter why you left your job, you can apply for an ACA or a short-term plan. If you already have an ACA plan, then you can keep it. You can also apply for tax subsidies if you meet the income requirements.
How do I handle health insurance if I'm self-employed and get health coverage through an employer?
You do not have to keep your existing policy. You can enroll in your employer’s health insurance plan. But it may have a waiting period. This means your employer may not cover you for up to 90 days. Because of this, do not cancel your existing policy until you have coverage.
You can also keep your existing policy. But there are downsides.
You cannot deduct the premiums.
You will not be eligible for federal subsidies.
The premiums will usually be higher on the existing plan.
You still may want to keep the plan if it has certain much-needed benefits.
The bottom line
Finding the right policy will take time — but it will be worth it. Make sure to look at the alternatives, such as employer plans (if they apply) and ACA policies. If you have a high-deductible health plan (HDHP), you can investigate an HSA for tax savings.
Depending on your circumstances, a high-deductible health plan (HDHP) can lower costs and pair with a health savings account (HSA) to make tax-free medical payments.
Do not just focus on the costs. Buying health insurance as a self-employed individual can pay off in the long run. When choosing a plan, make sure you get the benefits you need for you and your family.
While costs are important, it’s essential to compare the benefits of different plans to make sure your healthcare needs are covered.
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