Three in 10 U.S. jobs are held by self-employed individuals and the workers they hire.1 Taking the leap into self-employment or starting a small business means figuring a lot of things out, including how you will obtain health insurance.
The Affordable Care Act’s (ACA), oftentimes referred to as Obamacare, state-based and federally facilitated health insurance exchanges serve more than individuals and families. They also provide health insurance for self-employed individuals and health insurance for small businesses. Small businesses with one to 50 employees may offer exchange-based group health insurance coverage through the SHOP Marketplace or their state-based or federally facilitated small business health insurance marketplace.
SHOP, which stands for Small Business Health Options Program, serves small businesses in states that opted into the federally facilitated health insurance exchange, HealthCare.gov. If your state doesn’t participate in HealthCare.gov, you’ll want to visit your state-based exchange website to learn more about small business medical insurance options.
If you’re a self-employed individual without access to major medical benefits through an employer, you may wonder if you should purchase coverage through SHOP or a state-based small business marketplace or if you need to buy it elsewhere. The answer depends on whether or not your business consists of you alone or you and one or more employees. You should also consider whether or not you want access to additional benefits that can help with out-of-pocket healthcare expenses.
Let’s look at three basic scenarios—one or more of them may apply to you.
Health insurance for self-employed individuals with no employees
Are you a freelancer, consultant or contractor? You can apply for an individual major medical health insurance plan through a state-based or federally facilitated exchange (i.e., HealthCare.gov) or in the private marketplace. If you buy from HealthCare.gov or a state exchange and meet certain income requirements, you may qualify for an Obamacare subsidy (i.e., premium tax credits and/or cost-sharing reductions). Furthermore, your health insurance premiums may be tax deductible.
Individual major medical plans (sometimes called by their nickname ‘Obamacare plans’) are available to self-employed individuals and their family members. They are only available during the annual open enrollment period or, if you qualify, during a special enrollment period. The open enrollment period for 2019 coverage runs from Nov. 1 through Dec. 15, 2018.
If you miss open enrollment, are not eligible for special enrollment or would like to find alternative coverage for some other reason, you may want to consider one of the following options:
Short-term medical insurance: Temporary benefits available for 30 to 90 days (up to 364 starting as soon as October 2018 in some states) that help with covered medical expenses related to unexpected accidents and injuries.
Hospital indemnity insurance: A fixed indemnity plan, which some refer to as a hospital indemnity or hospital plan, pays fixed benefit amounts to help with covered medical expenses resulting from hospitalization, surgery and certain outpatient therapy services. Benefits may apply per day, per week, per month, per visit or per event, depending on the plan and the benefit that applies.
Bundled health insurance (short-term medical + hospital indemnity): You can enroll in short-term health insurance and hospital indemnity insurance plans at the same time. This gives you access to benefits for smaller daily benefits for covered illnesses and injuries as well as larger maximum benefits for more serious covered illnesses and injuries.
In 2018, most Americans are required to have health insurance that is considered minimum essential coverage or pay a tax penalty. That tax penalty goes away in 2019. While major medical insurance will still provide the most comprehensive coverage and fulfill all ACA requirements, you will no longer face a tax penalty if you choose alternative coverage.
Health insurance for small businesses and startups with one employee +
If you run a small business with between one and 50 employees (in some states, up to 1002), you can use the federal SHOP exchange or your state exchange’s small business marketplace to enroll your employees (and yourself) in health insurance plans.3 However, you must also meet all of the following requirements4:
- You must offer coverage to all of your full-time employees (generally, workers who average 30+ hours per week).
- At least 70% of the employees who you offer insurance to must be enrolled in your plan or have coverage from another source. Some states have different minimum participation requirements; visit HealthCare.gov to learn more. Note: If you do not meet this requirement, you can enroll in SHOP coverage between November 15 and December 15 any year without meeting a minimum participation requirement.
- You must have an office or employee work site within the state whose SHOP Marketplace you want to use.
In general, employees are, “workers whose incomes you report on a W-2 at the end of the year.”5] The IRS definition of an employee (common-law employee) is as follows (emphasis as it appears on IRS.gov)6:
Anyone who performs services for you is your employee if you can control what will be done and how it will be done. This is so even when you give the employee freedom of action. What matters is that you have the right to control the details of how the services are performed.
If you have a group of two or more (e.g., you plus one employee), you may be eligible for a group health insurance plan—from the SHOP and small business marketplaces or in the private marketplace. You may select plan options for your group, determine your employer contribution amount and allow employees to enroll through SHOP or your state-based small business marketplace. Small group enrollment is available year-round.
- You have 25 or fewer full-time equivalent employees
- Your average employee salary is about $50,000 per year or less
- You pay at least 50 percent of full-time employees’ premium costs
- You offer coverage to all of your full-time employees
Supplemental insurance + add-ons for self-employed individuals and small businesses
If you are looking to build a benefits package more like the one you had through your employer (or offer one to your employee or employees), you may consider the following supplemental products:
Self-employed dental insurance: Choose from a range of plans that meet your oral health and budgetary needs. Gain access to preventive, basic and major care benefits, depending on the plan selected. Vision benefits may also be available with certain plans.
Supplemental insurance: One type of supplemental coverage called medical gap plans can help with out-of-pocket expenses your major medical insurance or other health benefits don’t cover. When a covered accident or critical illness occurs, they pay fixed-cash benefits regardless of the expense. These plans are guaranteed issue, and you can use your lump sum payment however you choose.
Telemedicine: A telemedicine package provides you, your family members and your employees with access to 24/7 telehealth services, anywhere you’ve got mobile or Internet connectivity. Board-certified doctors can remotely treat minor ailments such as cold, flu, ear infections, urinary tract infections, and more for just a few dollars per consultation. This is not an insurance product.
Rx Discount Card: An Rx discount card can help reduce what you pay out of pocket for prescription drugs. You can use an Rx discount card whether or not you have major medical insurance (or any insurance at all). This is a standalone product that is available year-round. And it’s simple to use: You present it at a participating pharmacy to access your discount. This is not an insurance product.
None of these plans are intended to replace ACA-compliant coverage (e.g., major medical insurance, Medicaid, Medicare). However, they can help with out-of-pocket healthcare expenses throughout the year.
Summary + next steps
As a self-employed individual with or without employees, you have several coverage options. The best coverage for self-employed persons like yourself depends largely on your healthcare needs and your budget for monthly healthcare premiums and medical expenses paid out of pocket throughout the year.
Don’t navigate your self-employed health insurance options alone.
Work with a health insurance producer such as the certified advisors available through Health eDeals. Call 888-258-6270.