Guide to self employed health insurance

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Insights:

Self-employed people who can’t get health insurance through an employer have multiple ways to get health coverage on their own.

July 2021 broke records with 10.279 million self-employed people in the U.S., the most ever recorded. In its 2020 year-end report, Upwork predicts that 36.2 million Americans will be working remotely by 2025.

Coronavirus hastened the rush to self-employment, but burgeoning technology long ago changed the professional landscape, enabling remote work with ever-improving software and developments.

However, there is much to consider when you work for yourself. You’re responsible for your own taxes, your own payroll, and, perhaps most confusingly, your health insurance.

What is self employed health insurance?

Self-employed health insurance is a plan in which the insured is both the business owner and sole employee. Instead of an employer providing health insurance and helping pay for medical expenses, the self-employed person is responsible for furnishing and maintaining individual health insurance coverage.

A self-employed person is one that is both the owner and sole employee of a company. If you have even just one employee, you’re ineligible for self-employed health insurance. Common self-employed and remote professionals include independent contractors, consultants, freelancers, and gig workers, but any self-employed business owner without employees is typically eligible.

Joseph Torella, president of employee benefits with HUB International’s East Region, a global insurance brokerage, says you need to determine whether an individual is self-employed, engaged in your own business, or acting as a 1099 on behalf of another organization.

“The difference, for example, would be the real estate agent who earns commissions working for a large brokerage operation versus an individual who makes widgets in the basement and sells them online, to a supplier or at a craft fair. There are many other considerations, but this is typically a great place to start the conversation,” Torella says.

Key Takeaways

Buying health insurance may be more difficult when you’re not eligible for group health insurance, such as plans from an employer.
Self-employed workers can get individual health insurance directly from a health insurance company or through the health insurance marketplace.
Individual health insurance companies can use age and tobacco use when devising premiums.
Self-employed people may also be able to get covered by a spouse’s health insurance plan from an employer, which are usually cheaper than individual health plans.
People who are self-employed may be eligible for a self-employed health insurance deduction.

How much is health insurance for self employed people?

The cost of health insurance for self-employed workers is different for everyone and calculated based on several specific factors. Individual health insurance plans that are compliant with the Affordable Care Act typically involve these five factors:

Age: Individual health insurance is typically more expensive for older people, as the risk for medical problems increases dramatically with age.
Location: You may pay more or less partially based on how many health insurance options are in your area.
Tobacco use: Smokers are at a much higher risk for medical issues, which can create higher premiums.
Type of plan: The kind of health coverage can determine how much you pay, including whether you have to stay within a provider network for care and if you need referrals to see specialists.
Deductible: Your monthly premiums are lower when you have a higher deductible. However, a higher deductible also means that you have to pay more out-of-pocket before your coverage kicks in. When you choose a lower deductible, you have to pay less out-of-pocket costs for medical care, but you will face higher monthly payments.

Two things that health insurance companies can’t factor in your individual health insurance premiums are your gender and health status. Before the ACA, health insurers could use that information to set rates and even reject applicants. For instance, women could get charged higher rates before the ACA and people with pre-existing conditions could get turned down for health insurance coverage. That all changed with the ACA.

How to save on self-employed health insurance

There are ways to lower your self-employed health insurance costs.

If you have a low income, you may qualify for special deductions on health insurance marketplace plans for things like your copays, deductibles, and co-insurance. There’s a personal health insurance deduction that allows self-employed individuals to deduct 100% of health insurance premiums.

It’s applicable for federal, state, and local income taxes, and covers not only the policyholders but also any spouses and dependents. To qualify, you must have regular business income and no other active health insurance policy.

Another way to save on health insurance premiums is to get a high-deductible health plan (HDHP). A HDHP has a deductible of at least $1,400 for single coverage and $2,800 for family coverage. You have to pay that amount out-of-pocket for health care services over a year before the health insurance begins to pay for care.

A high-deductible plan also has a health savings account (HSA) or health reimbursement arrangement (HRA), which let you save tax-free for your future health care needs.

How do you calculate the self-employed health insurance deduction?

There are specific requirements to apply the self-employed health insurance deduction. Most self-employed individuals can either claim the total premiums paid or the maximum deduction, whichever is less, from their adjusted gross income.

Maximum self-employed deductions by age

Eligible ages	Maximum deduction
40 or younger	$420
41-50	$780
51-60	$1,560
61-70	$4,160
71 or older	$5,200

How do self employed workers get health insurance coverage?

The most common way self-employed workers get health insurance is through a self-purchased plan, such as through the health insurance marketplace or purchased directly through a health insurance company.

Statista reports that 24% full-time freelancers in the U.S. purchased their own self-employed health insurance coverage in 2019.

Provider	Percentage
Self-purchase plan	24%
Medicaid	21%
Medicare	19%
Spouse’s plan	15%
Employer’s plan	12%
Parent’s plan	7%
Other	2%

“Self-employed individuals are uniquely challenged by traditional forms of insurance, based on how each state regulates coverage, but there are strategies for finding the right solution for these individuals in today’s market,” says Torella.

Here are ways to get health insurance coverage if you’re self-employed:

Join a spouse’s plan

Sometimes, the easiest and most affordable way to find self-employed insurance is to simply be added to a spouse’s existing plan, especially if it’s employer-based health insurance.

“Joining on a spouse’s employer plan more than likely will provide the broadest benefit at the lowest cost to the family,” says Kevin Schlotman, CCO of Flume Health and a longtime member of the Society of Professional Benefit Administrators (SPBA).

However, Carter Seuthe, CEO of Credit Summit Student Loan Refinancing, says that not everyone may be able to qualify.

“If you are dependent on someone else’s return last year and start making a self-employed income this year, you may not qualify to be on their plan if you’re above a certain age.”

Stay on parent’s plan

Another option if you’re under 26 is to stay on your parent’s health insurance plan. The Affordable Care Act lets people stay on their parent’s plan until the age of 26.

That’s likely a more affordable health insurance option than getting an individual health insurance plan.

Health insurance marketplace

Individual health insurance is available via the federal marketplace for self-employed individuals. Open enrollment is available from Nov. 1 through Dec. 15. You can also enroll after a qualifying life event, like marriage, a new baby, or loss of prior coverage.

There are five types of private health insurance plans available from the marketplace that are separated by health care costs. Bronze, Silver, Gold, and Platinum plans are open to everyone with Bronze having the lowest premiums and highest deductible and Platinum having the highest premiums but lowest deductible.

Catastrophic plans are affordable health insurance plans that are only open to people under 30 and those who are facing specific financial hardships, such as homelessness.

For more details about specific coverage available to you, the marketplace application gets you started. It determines which coverage is best suited to your needs.

One benefit that the marketplace has over other health insurance sources is that the marketplace offers cost-saving subsidies to help reduce the cost of health insurance. The subsidies, based on your household income, can be used as premium tax credits.

How marketplace plans compare

Here are how the five plans shape up:

Type of coverage	Percentage insurer pays for care	Percentage member pays	Premium cost level
Catastrophic	50%	50%	Cheap
Bronze	60%	40%	Affordable
Silver	70%	30%	Average
Gold	80%	20%	Moderate
Platinum	90%	10%	Expensive

Purchase health insurance directly from insurer

Companies like Blue Cross Blue Shield, Cigna, and Kaiser Permanente offer self-employed insurance for individuals.

UnitedHealthcare is another provider with self-employed coverage, including short-term health plans that can help if you don’t expect to get other health coverage in the near term.

“There are some limited, non-ACA compliant, short-term programs available in certain states,” says Schlotman. However, he explains, “Those are medically underwritten and may not provide coverage as broad as people expect.”

Joshua Romo, an independent broker for Arizona Life and Health Solutions, explains in further detail.

“For example, a client can get a short-term health policy for a great discount through Aetna and supplement it with an accidental, dental, or vision policy that helps offset costs and actually pays the client to get routine checkups,” he says. “If something is accidental, like a contusion or injury, they can also be paid by AFLAC and will pay the client a certain amount, depending on the treatment they receive.”

Medicaid

Self-employed individuals with a low income may qualify for free or cheap health insurance from Medicaid. Medicaid offers comprehensive benefits.

You must meet the minimum income requirements to qualify for Medicaid. Additionally, not all doctors accept Medicaid, so it may limit your options if you have a preferred provider. Ultimately, eligibility depends on factors like your income and the size of your household.

Another option is faith-based healthcare, referred to as health sharing ministries.

“This type of plan is offered through 501(c)(3) nonprofit charities with a religiously-oriented purpose and serves as an alternative to traditional health insurance,” Schlotman says.

However, these health plans come with drawbacks. Schlotman warns.

“These programs generally also have some holes in benefits and are usually assessable — meaning if everyone enrolled is unusually unhealthy or there’s a series of large claims, members get a bill to cover the costs,” Schlotman adds.

What is the best health insurance for self-employed people?

The best self-employed health insurance is different for everyone based on your personal needs. When shopping for self-employed health insurance, there are several factors to consider:

Coverage: Consider what kind of health insurance coverage is most suitable for you, then check with potential providers to ensure availability.
Medicine: If you take a specific drug, check to see whether your preferred health insurance provider covers the right prescription medications.
Premium: Your health insurance premium is the amount you pay each month for your health coverage, so it’s critical to ensure that premiums fit into your budget.
Deductible: This is the amount you have to pay out-of-pocket before your insurance coverage kicks in for health care services.
Copay: When you visit the doctor, you likely have to pay a copay.
Network: Most health insurance providers have a specific network of medical providers that will be covered under your plan, so be sure that any preferred providers are covered under your new health insurance plan.
Third-party ratings: Rating providers like J.D. Power for customer satisfaction and AM Best for financial strength are key to understanding what a company will be like to work with. You can also check out Insure’s Best Health Insurance Companies for reviews.

Frequently Asked Questions

What is the self-employed health insurance deduction?

Self-employed individuals may be able to deduct all health insurance premiums for themselves, their spouses, and even dependents. This deduction is eligible for federal, state, and local income taxes but will not qualify for self-employment taxes.

Should you consider short-term health insurance?

Short-term health insurance is a tool when you’re in between jobs or health insurance periods. It can help provide coverage until the next enrollment period or serve as supplemental coverage to fill in any gaps in existing coverage.

However, short-term plans aren’t ACA-compliant, so coverage isn’t guaranteed and is typically more minimal than traditional health insurance plans. For instance, essential health benefits found in ACA plans like prescription drugs, mental health and maternity care aren’t usually covered by short-term health plans.

When can you get health insurance?

You can get a health insurance plan during the open enrollment period. Open enrollment varies by health insurance type. For instance, employer-sponsored health insurance differs by employer.

The ACA health insurance marketplace holds its open enrollment from Nov. 1 to Dec. 15 in most states. A handful of states have longer open enrollment periods.

Medicare open enrollment is Oct. 15 to Dec. 7. Medicaid and Children’s Health Insurance Program don’t have open enrollment. Instead, you can sign up for a plan at any time of the year if you’re eligible.

Can you get health insurance outside of open enrollment?

You can also sign up for health insurance during a special enrollment period if you have a qualifying life event. These life events can include if you lost health coverage, moved to another area, got married, got divorced, had a child, and other events that may mean you need to change or get coverage.

The special enrollment period starts the day of the event, such as a birth or losing coverage. You generally have 30 or 60 days to sign up for health coverage during the special enrollment period.

Lena Borrelli

Contributing Researcher

Lena Borrelli is a freelance writer from sunny Tampa Bay who has worked with such leading industry titans as Gronk Fitness, Morgan Stanley, Wells Fargo and Simon Corporation. Her work has most recently been published on sites like TIME, Microsoft News, Bankrate, Investopedia, Fiscal Tiger, The Simple Dollar, ADT and Home Advisor.