The Best Health Insurance Options for the Self-Employed

As someone who recently became my own boss, I’m now faced with the task of finding my own health insurance. Due to the recent healthcare laws and Affordable Care Act, this is made even more difficult for self-employed taxpayers.

What’s the best route for solopreneurs to take when getting health insurance? How can we still afford good coverage without breaking the bank?

On January 1, 2014, the Affordable Care Act will become fully implemented, where individuals and employers alike will be mandated to have health insurance coverage — or be forced to pay a fine.

Last year when I filed my income taxes, the program estimated that I would have to pay a $1,000+ fee when I file my taxes next year, if I don’t have health insurance.

This is a topic that’s been discussed in the Careful Cents Club, which is made up of sole-proprietors and freelancers. Here are some of the best options for health insurance coverage for the self-employed.

Health Savings Account (HSA)

Whether you’re self-employed or not, it’s my opinion that everyone should have a HSA. It’s an account that allows you to have much more self-control over, as well as getting a tax deduction for contributing funds into it.

I’m currently working with Chase to open a Health Savings Account through them, since that’s where I have my business account. They offer some great resources, tools and answers to questions about HSA’s.

What is a HSA?

A Health Savings Account is an account that’s linked to a high-deductible health plan (HDHP). It allows you and your family to pay for qualified medical expenses.

Normally you get a debit card with the account, so you can easily pay for everything from prescriptions, to Lasik eye surgery, to surgical procedures. It’s an individually owned account, that could potentially save you 20-30% on your medical expenses.

And the good news is, you own it! The money  you contribute to the account, belongs to you and your family. It will only get spent on qualified medical expenses.

How is a HSA funded?

You start by calculating your contributions, based whether you have single or family health insurance coverage, your age, and your paycheck. Then you can fund your account through tax-deductible contributions.

Any interest earned on the funds is tax-deferred and any withdrawals from the account are tax-free, when spent on approved medical expenses. No matter how long the money remains in the account, you’ll never lose it.

Unlike flexible spending accounts, any money you don’t use in your HSA will remain in your account from year to year, and continue to accrue interest until pay for medical expenses.

Use Your HSA for Investing

Once the balance in your HSA reaches $2,000 or more, you’re eligible to open an HSA Investment Account, where your funds can grow more rapidly than the interest on the savings account.

You can choose from a variety of mutual funds, all supporting a range of investment goals. Then after you turn 65, you can use the funds in your HSA on a taxable basis for anything, not just qualified medical expenses.

This is a simple way to supplement your investing and retirement savings goals — all while protecting you with health insurance coverage! See why I said everyone should have a Health Savings Account?

Health Insurance Exchange Plans

The Health Benefit Exchange Plan is created under the Afforable Care Act’s regulations where families, individuals and small businesses can shop for affordable health insurance — specifically in the New York area.

“If a sole proprietor doesn’t have the option of being part a group plan such as spousal insurance and they reside in a state that has created its own health insurance exchange, I would suggest they investigate the newly created exchange plans. The exchanges will be open October 1st, for a January 1st, 2014 enrollment date. It will give the sole-proprietor plenty of time to compare options,” states Simon Bukai, CEO of Vista Health Solutions.

“What makes the health insurance exchanges attractive, is that it has opened up competition for insurance companies to compete on the same playing field and make comparison shopping much easier for the shopper. Additionally if a self-employed taxpayer’s total income is between 122- 400% of the federal poverty level, then they will likely qualify for a subsidy which will likely reduce their premium to less than 10% of the Gross income,” says Simon.

“Most importantly freelancers should be aware that they always have the ability to drop their health insurance plans — without penalty — and can change to a plan that better suits their needs and income,” reminds Simon.

health insurance

Health Insurance Organizations for the Self-Employed

Remember, health insurance rates and coverage are heavily dependent on resident state and family size.

  • COBRA is an option for those considering leaving full-time work to freelance and might be a good thing to note if you’re considering full-time freelancing in the future (like Cat is).
  • College students can generally find discount insurance programs through their school. I know my university offered some pretty low-cost plans with the option to add a spouse or children for a higher rate.
  • One last note! Approximately 16% of employers offer health insurance offer coverage to part-time employees. It’s a very small group, but freelancers who are willing to work part time for a company, to supplement income, can explore that option.

1. National Association for the Self-Employed

NASE is an organization that provides day-to-day support for the self-employed. Besides access to legal and tax professionals, discounts on financial software, and payroll services, NASE also gives its members access to affordable health insurance.

They also give members access to a HSA and life insurance. Membership costs $120 max (assuming you aren’t a student or in the military) and health insurance costs will vary based on state and your personal plan.

Check out their website for more information on member benefits and request a form for insurance.

2. The Freelancers Union

Depending on your state, the Freelancers Union also has good health insurance options. They group members together in order to keep costs much lower than on the individual market. (For example, 30% lower in NY.)

The Freelancers Union is free to join, and you can enter your zip code on their website for group rates on health insurance.

3. eHealthInsurance.com

Thanks to the recommendation of several Club members, along with my financial planner Sophia, eHealthInsurance is one of the best options out there.

You can compare different health plans available for yourself or your family in the area you currently live. After putting in my information in (Dallas, TX, 2 adults), it gave me over 100 options and the cheapest price of about $80 a month.

If you’re in the pre-existing condition pool, no worries, some states offer health plans through a high-risk pool. The government also offers a Pre-Existing Condition Insurance Plan, but enrollment is currently suspended.

Depending on the severity of the pre-existing condition, a regular insurance company may not automatically decline (although I’m sure the rates reflect it).

Unfortunately, conditions such as cancer, heart disease, and diabetes are likely to result in an automatic decline. That’s when the high-risk pool plans and PCIP come in handy.

4. National Association of Health Underwriters

NAHU represents over 100,000 health insurance agents within the US. It directs you to local agents that will find the best plan for your situation, while promoting affordable health care.

This would be helpful for any self-employed freelancers who prefer an individual experience, or are overwhelmed by all the options. An agent can make the process less confusing and more personable.

To learn more, check out the NAHU site or find an agent.

5. GoHealth

This resource is very similar to eHealthInsurance.com in what it offers. You just enter your state, you and your family member’s ages and genders, then answer if you’re a smoker/nonsmoker.

It then displays a list of providers with different rates and deductibles. For more info, check out their website.

6. StartupInsurance.com

StartupInsurance.com is a great option for startups looking for health and dental insurance. The founders are actually founders of the TheYEC.org so they have first-hand experience with self-employed entrepreneurs. They aim to offer insurance that’s both affordable and complies with the Affordable Care Act (note: not all plans comply, as you will read below). The company is partnered up with Assurant, one of the largest health care providers for the self-employed.

To get started, enter your email address and your current state for an instant quote. It will give you three starting quotes — one for fixed-benefit insurance, one for major medical and one for dental.

Fixed-benefit insurance is a very basic plan with no deductible. Note: this type of plan does not necessarily meet the required amount of insurance, so you may have to pay a tax penalty. While this plan can help you save on medical costs, they limit the type of covered events. Benefits for pre-existing conditions will not be paid until you have been insured for 12 months.

The major medical plan offers 100% coverage on preventative services even before you meet your deductible. There are no lifetime benefit limits — meaning no dollar limits on hospitalization, doctor visits, or prescriptions.

With dental, you will receive cash benefits to help pay for dental checkups and treatment. There are no network restrictions or deductibles on this plan. For more information, check out their website.

The Importance of Health Insurance Coverage

The main point of all of this is that it REALLY depends on where you live and who you are covering. These resources should give you a good starting point for finding affordable health insurance coverage as a solopreneur.

It will also keep your mind at ease knowing that you and your family are protected if a medical emergency arises. And you won’t have to pay a high penalty on your taxes next year!

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About the author: Carrie Smith is the financial artist and owner of Careful Cents, a site that helps creative freelancers discover the art of making a living. In May 2013 she quit her full-time accounting job to pursue entrepreneurship and blogging. Since then she’s been featured in sites like The Huffington Post, Glamour Magazine, and Kiplinger Finance. In her spare time she enjoys painting, sketching, and making food with her chef husband. You can connect with her in real time on Twitter or Instagram: @carefulcents.

Comments on this entry are closed.

  • Michelle August 1, 2013, 8:37 am

    Love this post and I am definitely going to bookmark this. Insurance has been my biggest worrier about making the switch.

    • Carrie Smith August 1, 2013, 11:45 am

      Glad you found it helpful Michelle! Insurance has been one of my biggest hurdles too.

  • Budget & the Beach August 1, 2013, 10:26 am

    I still don’t know much about an HSA. I’ve looked into some of these other things and so far it paid off to just get my own HI privately using a broker. All other things like cobra, unions, etc were much more expensive. Crazy to think since I pay about 230/month and have a 5k deductible. Thanks for the tips!

    • Carrie Smith August 1, 2013, 11:46 am

      HSA’s are a wonderful option (as I showed here). I think it could definitely be something to look into for yourself. What you’re paying now seems a bit high, I agree.

  • Cat Alford/ Budget Blonde August 1, 2013, 12:30 pm

    Ah yes, health insurance. I just got booted from my parents when I turned 26 and just spent 4,000 for both the hubs and me to be on his school plan. Awesome, right? So freaking expensive. (And…I think you mean to say in the 1st sentence that you’re *now faced with the task) ;)

    • Carrie Smith August 1, 2013, 10:03 pm

      Ahh yeah, my fiance is getting booted from his parent’s insurance in September, so that’s also part of the reason I’m researching all this. It is freaking expensive — you’re right. But I’m interested to see how it will change come October 1st.

      P.S. Thanks for the catching the typo — it’s now fixed!

  • Jeffrey Trull August 1, 2013, 1:29 pm

    I’m still a little uncertain/nervous about the health care changes coming this fall.

    I’ve already been notified by my healthcare provider (which I found on eHealthInsurance) that everyone has to pick a new plan this fall.

    I currently pay $110 a month for a high-deductible plan, and I’m guessing I’ll have to pay more. Hopefully I’ll get better benefits, too, at least!

  • Kevin Haney August 2, 2013, 3:03 pm

    On balance I think PPACA will help more self employed people than it will help.

    It will help those just starting out whose incomes may be low. This is where the subsidies make a big difference. It will also help anyone with a preexisting condition who was unable to buy individual coverage in the past.

    It may hurt people taking advantage of spousal coverage, as the law does not require group plans to cover spouses, or make the coverage affordable.

  • Dr. Taffy Wagner August 8, 2013, 1:35 pm

    According to an article I read in Psychology Today by John C.Goodman, heath savings accounts are being affected by Obamacare. The allowed deductible is being reduced.

    Another option is a discount medical or dental program. They are not insurance, yet it provides a solution for people who can’t afford the high cost of health insurance. You can see such a resource at http://www.mybenefitsplus.com/twagner .

    Great article!!! Research is the key to get a solution for your particular situation.