Most Americans get health insurance through their employer. But if you’re self-employed, there’s nobody to pay for your health insurance but you. Where does that leave you when it comes to finding coverage for yourself and your family? While getting health insurance is more complicated when you’re self-employed, it’s possible to get and stay covered.
Marketplace Insurance
The obvious place to look for health insurance when you’re self-employed is the insurance marketplace for your state. On Healthcare.gov, you can search for plans that meet your needs and match your price range.
Now, without an employer to pay part of your premiums, you’ll likely find these plans are much more expensive than what you would pay for employer-provided insurance. This is often a major part of people’s calculations when they’re deciding whether or not to start working for themselves. If you’re deciding on your contracting rates, you’ll want to set them higher than you received as an employee, because you’ll need to cover a lot of expenses your employer used to.
You may be able to reduce the cost through Marketplace subsidies. These take the form of an advance tax credit, which is applied directly to your premiums. So instead of receiving money, you’ll see a discount on your premiums. You won’t need to apply for these separately. Simply fill in your income information in the application. As a self-employed person, you may find estimating your income is difficult. Healthcare.gov does not want last year’s income, but this one—which you may have difficulty guessing.
If you overestimate your income, you won’t receive as much in subsidies as you could have. But you’ll receive the remaining subsidy when you file taxes. If, however, you underestimate your income and make much more than what you told Healthcare.gov when you applied, you will need to repay the difference at tax time. That can be a large amount of money to have to pay unexpectedly. So it’s better to guess high, if you’re not sure. And, if you land a big contract and make more than you thought, make sure you update your income information with the Marketplace.
Tax Benefits
There are a few ways to use tax deductions to make your health insurance more affordable. First, you can write off 100% of your health insurance premiums if you are self-employed. This can reduce your adjusted gross income and thus the taxes you owe.
Second, you can lower your modified adjusted gross income (MAGI). This number is the amount of income the Marketplace considers to calculate your health insurance subsidy. Contributions to a pre-tax retirement fund or HSA are subtracted from your income when calculating your MAGI. Maximizing these contributions may increase your subsidy and thus lower the price you see for your insurance premiums.
Finally, you can choose a high-deductible plan. These “bronze” or “silver” plans have lower premiums but also high deductibles, meaning insurance won’t pay for many of your healthcare costs until you’ve met that deductible each year. That leaves you having to pay several thousand dollars in healthcare costs before your health insurance kicks in. But you can bridge that gap with an HSA. Contributing money to an HSA allows you to pay for healthcare costs with pre-tax money. And, as seen above, these contributions will make you eligible for a larger subsidy.
Other Health Insurance Options for Self-Employed Americans
If the costs you see on the Marketplace still seem too high, there are a few other options. You could, of course, go with a private insurance plan. These no longer come with any penalty if they’re not compliant with the ACA. A catastrophic plan could cover emergencies for a lower monthly premium.
Depending on your work, you may be able to access a group plan through a professional organization. Joining a guild or association related to your business can be a great move for many reasons, and health insurance can be a nice additional benefit. Group plans bring down costs for everyone by sharing risk among a large base, just as employer-provided healthcare plans do.
And, of course, if you can be covered by a partner or parent’s employer-provided health insurance, this is nearly always the best option. You may have to pay 100% of your premium, but you’ll still get the benefit of being part of a large group.
Enlisting an Expert
If you’re planning to quit your current job and start working for yourself, it’s a good time to talk to an expert about the changes this will make to your finances. You’ll want to make sure your numbers add up. If you’re already self-employed, a professional could help you find ways to reduce your healthcare expenses and tax bill. To find a financial advisor with experience helping self-employed people, contact us today.
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