The Best Health Insurance Options for Independent Contractors

The Best Health Insurance Options for Independent Contractors

Finding a self-employed health insurance plan that offers decent benefits, will actually cover you and doesn’t cost an arm and a leg may seem like a daunting process. However, finding one that fits your needs is worth your time. On this page, you’ll get a crash course in self-employed health insurance, why you need it and where to find it, plus get some tips to make your search easier.

Independent Contractor vs. Self-Employed vs. Small Business Owner

This guide is tailored to independent contractors and the self-employed.

Independent Contractor

If the person who pays you has control over the result of your work but not how the work is done, you may be considered an independent contractor. This includes freelancers and most gig workers, and may even encompass people in professional trades, such as doctors, lawyers, accountants, and contractors. One in ten Americans says being an independent contractor is their primary job, per Forbes.

Self-Employed

If you’re an independent contractor, then you’re considered self-employed according to the IRS definition. Around one in four people say they’ve been self-employed in the last year, per Forbes.

Small Business Owner

People often consider small business owners to be self-employed. Many reports use this methodology too, so you may see the two distinguished as employer and non-employer small businesses. However, you have additional health insurance options available to you as a small business owner that are not available to independent contractors. This guide can still help you if you just want coverage for yourself or your family, but you’ll also want to investigate small business insurance plans too.

What is Self-Employed Health Insurance, and Do You Need it?

Self-employed health insurance is simply individual (or private) health care coverage you can buy for yourself (and your family) on the government’s health insurance marketplace. Nearly half of all Americans get health insurance from their employer, according to eHealth. Also known as “employer-sponsored coverage,” these group plans are selected and purchased by an employer and made available to employees and their families, those who have recently left the company, and retirees of the company. If this description seems to apply to you, it’s important to explore your options for self-employed health insurance. Employers usually cover part of the plan’s premium too.

Without an employer to select a plan or subsidize some of the cost, those who are self-employed must purchase individual coverage for themselves.

How Does Health Insurance for the Self-Employed Differ?

With employer-sponsored coverage, your options are limited to what your employer selected. That means you might not be able to get the level of coverage you want or have coverage when you visit your preferred providers. However, if you work for a large company or one with a skilled negotiator, the organization will often be able to secure a plan with lower premiums and out-of-pocket costs.

Health insurance as an independent contractor will often be more expensive because you don’t have collective bargaining power behind you. There’s no employer paying part of your premium either, though sometimes people qualify for government subsidies instead. You’re free to choose your insurance company, plan, level of coverage, and other details. You can also connect with your preferred providers to find out which insurance plans they accept and then choose a plan that allows you to stay with them.

One other big difference between the two is how premiums are paid. With an employer-sponsored plan, your premium can be taken from your paycheck before taxes. This isn’t an option for the self-employed.

Why It’s Not a Good Idea to Be Uninsured

Not having independent contractor health insurance is risky. Costs from preventative care, tests, and other standard medical visits can add up. In addition, it can be financially catastrophic if you face a serious illness or injury without self-employment health insurance too.

Tax Penalties

There was previously a federal law that required everyone to have health insurance. Unless you qualified for an exemption, you were fined when you paid your taxes if you didn’t have insurance. This federal law no longer applies, but some states have since enacted their own with similar penalties.

Tax Benefits

If your qualifying medical expenses exceed 7.5 percent of your adjusted gross income, and you choose to itemize deductions, you can deduct the portion that exceeds 7.5 percent, according to the IRS. In addition, self-employed premiums are generally considered qualifying expenses.

Out-of-Pocket Costs

Out-of-pocket costs can be considerably more for someone who is uninsured. For example, the average base cost of an emergency room visit before procedures is $1,082, according to a Consumer Health Ratings report. Uninsured patients pay $138 more, coming in at $1,220.

Visiting a physician is more expensive too. Most insurance plans are now required to cover 100 percent of preventative care, including an annual physical and any recommended tests. If you’re uninsured, these costs are on you.

How to Get Health Insurance as an Independent Contractor

There are lots of different ways to obtain self-employed health insurance or get on a plan if joining an employer-sponsored plan isn’t an option.

The Federal Health Insurance Marketplace or State-Based Marketplaces

The federally facilitated Health Insurance Marketplace makes it easy to compare health insurance plans. It offers coverage and cost details across various plans from different insurance companies and allows visitors to sign up directly through the site. Plus, those interested in exploring tax credits or other government programs like the Children’s Health Insurance Program (CHIP) can get find out if they qualify there too.

Some states have their own marketplaces that work similarly. The latest list is available on HealthCare.gov.

Medicare and Medicaid

Medicare is a federal insurance program. It’s primarily used by people with disabilities and those over age 65. There are many different Medicare plans, and each will have unique benefits, though most work like traditional plans in that there is a monthly premium payment and deductibles. Additional information is available at Medicare.gov.

Medicaid is a state medical insurance program designed to help low-income individuals and families. If you think you might meet the criteria, you can check at HealthCare.gov.

Private Health Insurance

Sometimes insurance companies sell policies outside of the marketplace too. On one hand, these can sometimes have wider provider networks. The tradeoff is that they usually attract those providers by paying them higher fees, and some or all the extra cost is passed on to you in the form of higher premiums. Others offer plans designed specifically for the self-employed. It can be difficult to wade through all the different companies and individual plans offered by each company, so there are often benefits to working with an independent insurance agent who already knows what’s out there and can help you find the best plan for your needs.

Health Care Sharing Ministries

Health care sharing ministries (HCSMs) are not insurance, but they may be an alternative for some people. Instead of signing up with an insurance plan, you join a health-sharing group and pay a monthly “share fee” rather than a premium. All the funds are pooled together. You’d then visit your provider and pay toward your “annual unshared amount,” which is like a deductible. The self-employed health insurance deduction allows eligible individuals to deduct the cost of health insurance premiums on their tax returns. When you reach your annual unshared amount, the joint fund kicks in and pays out according to the plan’s guidelines.

The positives are that share fees are usually less expensive than insurance premiums, and there are no network requirements. You can usually see any provider you wish. On the downside, these aren’t insurance plans, so they’re not required to pay preventative/ wellness visits, and many don’t offer coverage for things like mental health.

HCSMs are classified as charities, and all members must “share a common set of ethical or religious beliefs and share medical expenses among members in accordance with those beliefs,” according to the Accordable Care Act. That means most have a religious undertone, though they tend to be non-denominational. Because of this background, they also tend to have moral and ethical standards for their members. For example, most prohibit tobacco use, and many prohibit alcohol.

Employer Plan Through a Family Member

Most insurance companies only allow enrollees to add their spouses and children to their plans. However, some have a wider window and open it to others who are dependent on the enrollee, and a select few allow other family members to be listed. Although you may not find coverage this way, it doesn’t hurt to check.

Association Health Plans

Are you a member of a professional association? If so, check if they offer an association health plan (AHP). The rules vary depending on the association. For example, you may be expected to pay membership dues to qualify or prove that you meet their membership criteria. In addition, some AHPs for the self-employed require members to provide tax returns to prove they’re self-employed.

The positive side is that some associations have bargaining power based on their numbers, similar to large corporations. However, most are smaller, so you may see lesser coverage and higher premiums. Each one should be evaluated independently.

Health Insurance Options for if You’re Newly Self-Employed

If you’re newly self-employed, you have a few additional options.

COBRA

The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) requires most employers to allow former employees to continue their insurance coverage for a limited period of time under certain circumstances. The benefit is that you can generally keep your insurance plan while you transition. The downside is that the employer is not likely to cover any of the premium costs, and you may end up paying up to 102 percent of the plan’s cost.

Short-Term Health Insurance

Short-term insurance can cover you for up to three months, and you can enroll outside of normal enrollment periods. The premiums are usually less expensive than what you’ll see with COBRA too. However, pre-existing conditions aren’t usually covered, and you’re likely to have high out-of-pocket costs.

How Much Does Health Insurance Cost if You’re Self-Employed?

A lot goes into determining the cost of self-employed health insurance‚ÄĒeverything from the plan benefits to your habits, age, and location impact what you’ll pay.

To give some context, the average premium in the United States is $456 per month or $5,472 annually per KFF. Vermont residents top the chart at $861 per month, while people in New Hampshire pay just $323. Here in Texas, where Charter Capital is headquartered, the average is $461.

Tips for Choosing Health Insurance if You’re Self-Employed

Ready to start your search? These tips can help you find the right plan quicker.

Make a List of Priorities

You probably aren’t going to find a plan that lets you see any provider, plus has low premiums and deductibles, and has high coverage. Know what’s most important to you in a plan before you begin shopping.

Work with a Broker or an Agent

An independent broker that works with multiple insurance companies can help you find the best plan for your needs.

Investigate Subsidies

Even if you’re earning well, you might still qualify for tax credits and cost-sharing subsidies. It’s a good idea to run your numbers through the federal healthcare marketplace to be sure. 

Be Openminded

Options like a cost-sharing network or a health savings account may help you bridge the gap between what you want and what you can afford at this stage.

Accelerate Your Business Cash Flow with Charter Capital

Although we can’t make the perfect self-employed health insurance plan instantly materialize for you, we can help you accelerate payment on your B2B invoices, so you can invest in company growth and cover other daily expenses. Connect with us for a complimentary rate quote.

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