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Guide to Self-Employed Health Insurance

Business 101December 05, 2023

Being self-employed means you’re responsible for your own healthcare coverage, especially if you don't have the option to piggyback on a spouse's insurance plan. Unlike traditional employment, where healthcare is often a company-provided benefit, you're tasked with navigating the complexities of healthcare on your own as a self-employed individual. 

Applying for a personal plan, managing payments, and untangling the tax implications is a mountain of responsibilities. 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.

What is Health Insurance: Who Needs it and How Much Does It Cost?

Employer-Sponsored Health Insurance vs. Self-Insured Health Insurance

Employer-sponsored health insurance is typically provided by companies to their W-2 employees, often as part of their employment benefits. The employer covers a portion of the premiums, offering a group plan that employees can opt into. This setup often provides a range of coverage options at group rates for both the employee and their dependents, with the cost shared between the employer and the employee.

On the other hand, self-insured health insurance is exactly what it sounds like: Health insurance for individuals who are self-employed or don't have access to employer-sponsored plans. Because individuals have to secure their health coverage on their own, this means selecting, managing, and paying for a plan that suits their needs without the assistance of an employer.

Do Independent Contractors Need Health Insurance?

As a freelancer, your income isn’t always consistent. When you're trying to save money, investing in health insurance might seem like a cost that’s easy to strike from your monthly expenses. However, the cost of not having coverage can far exceed the expense of insurance premiums.

If you are uninsured, the burden of paying for medical emergencies falls entirely on you as an individual, potentially leading to financial hardship or the inability to sustain your business. It’s a risk many aren’t willing to take.

While there’s no longer a federal mandate for health insurance, some states and territories still have their own coverage mandate. So, while health insurance may not be required for independent contractors, it’s still a good idea. 

How Much Does Self-Employed Health Insurance Cost?

Insurers consider multiple factors when determining monthly premiums, so there’s no one-size-fits-all cost for self-employed health insurance plans. According to eHealth, the average national monthly costs for ACA-compliant plans for the first half of the 2021 Open Enrollment Period were $484/month for individual coverage. 

The cost of health insurance depends on a few different factors:

  • Age: Older individuals may face higher premiums due to increased risks

  • Health status: Pre-existing conditions could impact premium rates. 

  • Type of coverage needed (individual vs. family): You’ll pay higher monthly premiums if you’re looking to insure your family vs. purchasing an individual plan

  • Location: Health insurance expenses can differ based on your state’s health insurance costs and regulations. 

  • Deductibles and co-pays: Plans with lower deductibles and co-pays usually have higher monthly premiums.

  • Income: Your income could make you eligible for government subsidies

When to Apply for Health Insurance

Each year, there is a limited enrollment window to sign up for Affordable Care Act (ACA) health plans. This Open Enrollment Period (OEP) runs from November 1 to January 15. However, you must sign up by December 15 for coverage to start on January 1. 

A qualifying life event—such as getting married, moving, or losing employed-sponsored health coverage–can make you eligible for a Special Enrollment Period. Otherwise, the Open Enrollment Period is your only window to apply for a new health insurance plan.

Important dates for Open Enrollment:

  • November 1, 2023: Open Enrollment starts—the first day you could enroll in, re-enroll in, or change a 2024 health plan through the Health Insurance Marketplace®. Coverage can start as soon as January 1, 2024.

  • December 15, 2023: Last day to enroll in or change plans for coverage to start January 1, 2024.

  • January 1, 2024: 2024 coverage starts for those who enroll in or change plans by December 15, 2023 and paid their first premium.

  • January 15, 2024: Last day to enroll in or change a 2023 health plan. After this date, you can enroll in or change plans only if you qualify for a Special Enrollment Period.

  • February 1, 2024: 2024 coverage starts for those who enroll in or change plans December 16, 2023 through January 15, 2024 and pay their first premium.

So why is there only one window to apply for health insurance? Created by the Affordable Care Act (ACA) in 2013, the Open Enrollment Period was 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 seek care immediately. 

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 means 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.

Note: There may be different enrollment dates for state-run marketplaces. For example, California residents have a longer OEP and can apply for insurance from November 1 to January 31 of the following year. If you apply by December 15, your plan will start on January 1. If you apply between December 15 and January 31, your plan will start on February 1.

How to Enroll in a Health Insurance Plan

You can enroll in your health insurance plan directly with a health insurance carrier, 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 estimated income for the upcoming year. Your income estimate will help determine if you're eligible for government assistance paying for your plan. Suppose your income is below a certain threshold (depending on your zip code). In that case, you may be eligible to receive government subsidies on your monthly insurance premiums called "advanced premium tax credits".

If you’re a Found customer, health insurance options are at your fingertips with eHealth, a new partner in Found’s Business Toolkit. With eHealth, you can explore your health plan options and compare plans and providers to find your perfect fit. 

Are Health Insurance Premiums Deductible?

If you’re self-employed and paying for your own health insurance, you may be able to deduct the amount you paid for medical and dental insurance 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

The self-employed health insurance deduction is an adjustment to income rather than an itemized deduction. You cannot deduct the cost of health insurance on your Schedule C tax form. Don’t get confused by Line 15; that’s specifically for business insurance premiums. Instead, it reduces your overall income and, by extension, your income taxes. 

You can only 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. 

Another thing to note: The deduction applies to the amount you pay monthly, 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.

If you have questions about how your health insurance premiums fit into your tax bill, it’s always a good idea to consult a tax professional, such as a Certified Public Accountant (CPA). They'll help you determine the most suitable choice for your circumstances.

Invest in Your Health and Future

When you're self-employed, figuring out the best health insurance plan is no walk in the park. Between confusing terminology, ever-changing plans, enrollment deadlines, and tax implications, it can get overwhelming fast. But after all, health is wealth. Finding coverage that protects both your finances and physical well-being is essential, especially in an unpredictable entrepreneurial lifestyle. 

Disclaimer: The information on this website is not intended to provide, and should not be relied on, for tax advice.

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