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Guide to Self-Employed Health Insurance
Guide to Self-Employed Health Insurance
How to Get Your Own Health Plan
November 2020 * 7 min read

If you’re self-employed and aren’t able to get health insurance from a spouse, you’ll have to deal with managing your own healthcare instead of relying on an employer to do it for you. While applying for your own plan, managing your payments, and dealing with the tax implications of your plan can seem like a lot of overhead, it’s entirely possible to do so on your own without the help of an employer. We’ll walk you through when and how to apply, how to save money on your plan, and how to use your health insurance to save money on taxes.

Apply between November 1st and December 15th

You have one six-week window per year to apply for a new health insurance plan, unless you’ve recently lost your health insurance coverage for some reason (like losing your employer coverage, moving, getting married or divorced, or another qualifying life event, among a few others). This period—called the “Open Enrollment Period” (OEP)—runs from November 1st to December 15th every year. Plans purchased during this period will start on January 1st of the following year.

The Open Enrollment Period was created by the Affordable Care Act (ACA), and began in 2013. It’s designed to reduce risk to health insurance carriers by preventing people from signing up for health insurance only when they’re sick, and need to immediately seek care. Since health insurance companies are financed by monthly plan premiums, they depend on having at least some customers who will use their plans infrequently. Restricting the signup period ensures that the people signing up for healthcare are a mix of people who will use their plans frequently (which is expensive for health insurance carriers), as well as those who won’t seek care very often (who may pay more into the system than they’d get out of it). This was the ACA’s alternative to people signing up for healthcare year round, but going through rigorous underwriting processes that involved people paying more if they had pre-existing conditions.

If you miss the December 15th deadline to apply, you’re unfortunately out of luck; you won’t be able to apply for a comprehensive health insurance plan until the following year. You’ll still have the option of getting a short-term medical plan, or even accident insurance, which can help offset unexpected medical expenses. But if you’re in need of a qualified health plan, you’ll want to make sure you pay attention to that December 15th deadline!

Note: California residents—you have a longer OEP! You’re able to apply for insurance from November 1st to January 31st of the following year. If you apply by December 15th, your plan will start on January 1st. If you apply between December 15th and January 31st, your plan will start on February 1st.

Enroll with a health insurance carrier, broker, or on Healthcare.gov

You can enroll in your own health insurance plan directly with a health insurance carrier, with a health insurance broker, or via a government health insurance exchange website like Healthcare.gov.

When you apply you’ll be asked to provide personal details like your name, birth date, address, Social Security number or immigration document number, and your estimated income for the upcoming year. Your income estimate will help you determine if you’re eligible for government assistance with paying for your plan.

How health insurance subsidies work

If your income is below a certain threshold (which varies depending on your zip code), you’re likely eligible to receive government subsidies on your monthly insurance premiums called “advanced premium tax credits.”

You’re probably already aware that if your income is below a certain threshold when you file your taxes, you can qualify for tax credits, which are tax breaks that reduce how much you owe in taxes. Advanced premium tax credits are no different—except they’re paid to you early, and you can only use them to lower the cost of your health insurance. These tax credits (or “subsidies”) are paid directly to health insurance carriers by the government, which allows you to pay less for your monthly health insurance payment.

For example, if your monthly plan price with Kaiser Permanente is $350, but you receive a monthly subsidy of $150 based on your income, then you would only pay $200 per month to Kaiser, and the $150 subsidy will be paid to Kaiser directly by the government.

If you’re eligible, get a subsidy through Healthcare.gov or your state exchange site

If your income qualifies you for a health insurance subsidy, you can only receive it if you apply for a health plan on a government health insurance exchange, using a government website. In most states, this means applying on Healthcare.gov, but there are 15 states that have their own state-based websites. When you’re asked to enter your adjusted gross income (AGI), the website will tell you if your income qualifies you for a subsidy. Your AGI can qualify you for one of these tax credits if it’s between 100% and 400% of the federal poverty line.

When you apply for health insurance on a government-run health insurance exchange, you’ll be asked to report how much you think you’ll make in the upcoming tax year, since the amount of your premium tax credit depends on your income. You’re asked for your estimated income so that the site can calculate how large of a subsidy you’re eligible to receive.

There are a few other requirements to keep in mind; for example, you’re only eligible for a subsidy if you:

  • Are not eligible for an employer plan via your job, or via your spouse’s job

  • Don’t file taxes with the “married filing separately” filing status

  • Cannot be claimed as a dependent on someone else’s tax return

Estimate next year’s AGI

Estimating how much you’ll make next year can be a bit tricky, but Found has some tips on how to make your estimate as accurate as possible.

Your ultimate goal is to find the income that you’ll report on next year’s tax return, including your deductions. This means your income estimate should factor in:

  • All of your sources of income. If you have multiple jobs, you’ll want to make sure you include the income from all of them, and not just your self-employment income.

  • Your business expenses. Not sure what qualifies as a business expense? You can find a list of common ones here

  • Your above-the line deductions (also known as “adjustments” to income). You can find a list of these deductions here

If you’ve had relatively few changes to your yearly income for the past few years, then we recommend using your most recent tax return or profit and loss statement to estimate your AGI for next year. Be sure to factor in any changes that you think you may see in the following year; for example, if your AGI from last year was $45,000, but you believe your business will earn a little extra, it’s a good idea to round up to $50,000.

If you’ve been self-employed for less than a year and aren’t entirely sure what your yearly income will be, you can take these steps:

  1. Find your income (and deductions!) what from you’d consider to be a “typical” month in your job

  2. Multiply your income from that month by 12 to find your estimated yearly income

Running a business with fluctuating income? You can follow the same steps, but account for your slower months. For example, if you know that you’ll probably have 3 slow months and 9 busy months, you can find your typical income for each of those types of months, and add them up to find your yearly estimate.

What happens if my income estimate is wrong?

Since your subsidies are technically tax credits, reconciliation for incorrect income estimates happens when you file your taxes for that year.

If your income estimate is too high, you’ll have been receiving less money in monthly subsidies than you actually qualified for, and you’ll get a tax refund for the money that you weren’t receiving monthly. If your estimate is too low and you end up earning more money than you expected, you’ll have been receiving extra subsidy money, and you’ll have to pay it back.

We recommend keeping tabs throughout the year on how close your actual income is to your reported income. For example, let’s say you expected to earn $3,000 per month from your business, and applied for health insurance with a $36,000 yearly income estimate. If you notice that you’re actually earning closer to $2,500 per month, you can report an income change with the health insurance exchange so that your monthly subsidy can be adjusted.

Save on taxes through the Self-Employed Health Insurance Deduction

If you’re self-employed and paying for your own health insurance, you can deduct the cost of your premiums as an above-the-line deduction using a deduction called the Self-Employed Health Insurance Deduction. You’ll qualify for that deduction if:

  • Your business was profitable

  • Your health insurance policy is in your name or in your business’ name

Note that you can deduct your health insurance premiums to the extent of your business profit. For example, if your profit for the year was $2,000, but your health insurance cost $2,500 for the year, then you could only deduct $2,000 in premiums.

The self-employed health insurance deduction applies to premiums for health insurance, dental insurance, and qualified long-term care insurance. The deduction applies to the amount that you pay per month, not how much the plan price was originally. For example, if your plan price was originally $200, but you received a monthly subsidy of $50, you would only deduct the $150 that you actually pay each month.

This deduction can make a big impact on your taxes; for example, if you’re paying $150 per month for health insurance, that’s a $1,800 deduction on your tax return! If you’re a a Found user, you’ll want to record this deduction under “Adjustments” in your tax profile.

Summary

When managing your own health insurance policy, keep the following in mind:

  • Keep track of important application deadlines in your state. Most states will follow these deadlines, but if you live in one of the 15 states that has their own marketplaces, be sure to check with your state’s healthcare website! You can find a list of those sites here.

  • If you need to estimate your AGI, make sure you factor in your deductions. Otherwise, your income estimate will be too high and you’ll pay more than you need to for insurance!

  • Make sure you deduct the cost of your premiums. They can make a big difference on your tax return!

Questions about calculating your AGI, or deducting your health insurance? Feel free to contact our Customer Experience team at help@found.app!

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