Healthcare for the Self-Employed: What Happens If I Don’t Have Health Insurance?

By Megan Sullivan

4 min read

One of the biggest personal expenses you’ll have as a freelancer is health insurance. While it’s now more accessible than ever, healthcare isn’t cheap, and new regulations enacted by the federal government levy fines against Americans who don’t have coverage.

In addition to these fines, here are a few aspects of healthcare that self-employed professionals need to know.

What the Passage of the Affordable Care Act Means

The Affordable Care Act was signed into law in March 2010 and consists of different provisions that will take affect between 2010 and 2020. While there are many different facets to the act, below are the most important for self-employed individuals:

  • Pre-existing conditions: Insurance carriers can no longer deny a patient coverage due to a pre-existing condition.
  • Minimum essential coverage: This is the new established minimum standards for health insurance policies. Individuals who meet these minimum standards are exempt from penalties for lack of coverage.
  • Individual mandate: Requires all individuals who are not covered by an employer, Medicaid, Medicare or other public insurance program to secure their own policy or pay a penalty. This penalty is waived for individuals with recognized financial hardship or members of a religious sect as identified by the Internal Revenue Service.

How to Avoid Paying a Tax Penalty

In order to avoid paying the penalty, you must sign up for a plan with minimum essential coverage during the open enrollment period (November 1, 2015, through January 1, 2016, for the 2016 tax year) or receive an exemption.

Minimum essential coverage was established by the ACA and basically includes any third-party, government or job-related health insurance coverage.

If you qualify for an exemption and secure it during the open enrollment period, you can also avoid paying a penalty. The most common exemptions include:

  • You received coverage via the open marketplace or other recognized source.
  • You went three months or less without coverage.
  • Your income falls below the tax-filing threshold, and you do not file taxes.
  • Insurance coverage would cost more than 8% of your household income per person.

There are many more exemptions that you might qualify for. Check out the complete list here.

Without coverage or an exemption, you will be required to pay the penalty.

What Is the Penalty for Not Having Health Insurance?

This penalty is officially called the individual shared responsibility payment. For 2016, there are two different ways that the penalty can be calculated; uninsured individuals will be required to pay whichever fee is higher.

Calculation 1: Percentage of Income

  • This fee is 2.5% of your annual income, with a maximum penalty of the total yearly premium price for a bronze plan sold through the Marketplace.

NOTE: If you are calculating your penalty using this calculation, only your household income that is above the yearly tax-filing threshold ($10,500 for individuals and $20,300 for couples filing jointly) is counted.

Calculation 2: Per Person

  • Individuals are charged $695 per adult without coverage and $347.50 per child without coverage, with a maximum penalty of $2,085.

The penalty is owed to the IRS and levied when you pay your taxes. For tips on how to calculate your fee, see Healthcare.gov.

If you had coverage for part of the year, your annual fee is divided by 12, and you are only required to pay that amount for each month you are without coverage. If you don’t have coverage for one or two months, you qualify for a short coverage gap exemption and will not be required to pay the fee.

For the 2015 tax year, the penalties are calculated as follows:

  • Percentage of Income: 2% of your annual income, with a maximum penalty of the total yearly premium price for a bronze plan sold through the Marketplace.
  • Per Person: $325 per adult without coverage and $162.50 per child without coverage, with a maximum penalty of $975.

More Financial Consequences of Not Having Health Insurance

On top of the penalty payable to the IRS, not having health insurance can cause other financial burdens on you or your household. Without health insurance, if you suffer a medical emergency, you will be responsible to pay all of the healthcare costs; on top of that, individuals without insurance often pay more for treatment than those with it.

Because of the high cost of medical treatment for the uninsured, according to a 2014 survey by Nerd Wallet, unpaid medical expenses are the No. 1 reason people file for personal bankruptcy.

As a self-employed individual, filing for personal bankruptcy could ruin your credit and your chance to secure financing for your business. Even if you don’t have to take the extreme step of filing for bankruptcy, high medical costs could result in high credit-card balances or failure to pay card payments, which could send these bills to collections and cause a sharp drop in your credit score.

More Unhealthy Consequences

Additionally, people without health insurance typically delay seeking medical care, which can allow small injuries or mild illnesses to exacerbate. Routine exams that are normally free once a year with most health insurance plans help doctors identify and treat problems early. Also, if you wait to address a medical problem after it becomes an emergency, emergency medical care is typically more expensive.

Also, doctors are not required to provide care to uninsured individuals, so your lack of insurance could lead to lower quality care.

As a self-employed individual, your entire livelihood is based around your ability to work. Neglecting your health and foregoing health insurance coverage cannot only lead to hefty financial penalties but also long-lasting medical issues. To ensure you stay healthy, and for further guidance on selecting the best healthcare plan for you, check out Stride Health. For more tips on healthcare for the self-employed, see our article on the frequently asked questions regarding healthcare.

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Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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