Working as a Freelancer

Freelancers’ Guide to Health Insurance

As a self-employed individual or sole proprietor, your responsibilities are vast. Beyond your business tasks, however, you are also now solely responsible for providing your own healthcare insurance. If you’re new to freelancing or have always received health benefits through your employer, the shock of paying the full premiums for healthcare can be intense.

It can also seem too daunting to really deal with. However, the Affordable Care Act, which took effect in 2014, enacted monetary penalties for any adults in the U.S. without healthcare coverage.

The penalty for forgoing healthcare coverage is 2% of your annual income or $325 per person, whichever is higher. In 2016, these figures will rise to 2.5% or $695 per person. So really, it’s in your best interest to get coverage now and avoid these penalties.

Below are five of the most common ways you can get your own healthcare coverage as a freelancer.

1. Healthcare.gov or State Exchange-Equivalent

Healthcare.gov is the health insurance exchange run by the federal government. It offers a searchable database of available coverage depending on your location, age and other factors. You can also find competitive rates and determine the best coverage for you and your dependents. Check out the quick start guide to get your general questions answered regarding coverage. Here are the highlights:

  • The ACA made it illegal for any insurance carrier to deny coverage to an individual or charge more because of a pre-existing condition.
  • There is a list of essential health benefits that all insurance plans cover, including emergency services, hospitalization (including surgery), pregnancy and prescription drugs.
  • Dental insurance is also available, but only when a health insurance plan is purchased through the exchange.

State exchanges, such as Covered California or New York State of Health, operate like Healthcare.gov but are run by state governments. If you live in one of the nineteen states that operate their own healthcare exchanges, then that’s where you will go for an exchange-administered plan. For plan year 2016, however, there are two exceptions, as Oregon and Nevada—states with their own healthcare exchanges—will be using Healthcare.gov to support portions of their programs.

Freelancers and self-employed people without employees can purchase coverage through Healthcare.gov’s individual marketplace. This means that it’s possible to earn tax credits that may reduce your monthly insurance premium or your annual tax burden. It’s important to note, however, that you are responsible for estimating your income—inclusive of self-employment and other sources—for the coming year.

If you earn more money in the new year than you estimated, you might also have to repay any tax credits earned based on the earlier, lower self-reported income estimate.

Open enrollment begins on November 1, 2015, and ends on January 31, 2016.

2. Private Insurance Companies

Most private insurance companies offer direct sales to individuals via their websites or call centers. There are also strictly web-based health insurance companies that also offer individual policies. As long as the policy you purchase meets or exceeds the coverage offered via Healthcare.gov, it will count toward your health insurance requirement.

3. Your Spouse’s Health Plan

If you have a spouse who works for an employer that offers healthcare, you can typically be added to his or her policy. While this may raise the cost of your spouse’s healthcare premiums, it will probably be cheaper than getting your own independent plan.

This option isn’t always cheaper, however, so it’s worth doing the math to make sure it pays off. Some companies no longer pay as much of their employees’ health insurance premiums as they used to, which has raised the pre-tax cost dramatically for some people.

4. Professional Organizations

Some professional associations, such as bar associations or alumni groups, might offer you health insurance coverage at group rates. If you’re over 50, it’s also worth exploring AARP.org. The Freelancers Union has a great website that breaks down the different types of coverage available and how to get them.

5. Hire an Employee

Once you hire an employee, you are considered an employer, and therefore, you’re eligible to purchase health insurance from Healthcare.gov or your state’s small business exchange, also known as Small Business Health Options Program (SHOP) Marketplace. SHOP is also convenient because there is no limit on the enrollment period—you can enroll anytime throughout the year.

6. Determine What Type of Coverage You Need

Different coverage levels offer different premiums and deductibles. Typically, plans with high deductibles but low monthly premiums are called catastrophic coverage. This plan will cost you less for your monthly premium, but your deductible will be high and must be met before the health insurance kicks in. This type of coverage is recommended for people who are under 30 and in relatively good health. It is meant to cover serious accidents or illnesses, not chronic or ongoing issues.

The other available levels via Healthcare.gov are Bronze, Silver, Gold and Platinum. At each level, the amount the plan pays toward your expenses increases. For example, the Bronze plan will be 60% of your healthcare costs, while the Silver plan will be 70%. This is on top of the monthly premium you are responsible for, which is generally a bit higher for these plans, and after your deductible is met, which is generally lower for these plans.

While you have to be cognizant of what you can afford to pay, you also don’t want to find yourself in a medical situation with the wrong coverage. Be honest with yourself about how often you go to the doctor, how often you’re sick or need prescription medication and how prone you are to accidents. If your weekend hobby involves BMX biking or rock climbing, you might want a plan that will help you pay for those emergency room visits.

Ready to Enroll?

If you choose to use Healthcare.gov, you’ll need to gather the documents listed on this checklist before you begin your application. If you’re more comfortable talking through your options, you can also speak with a Healthcare.gov representative toll-free.

If you choose to get your insurance through a private company or professional organization, the resources available on Healthcare.gov are still very helpful, especially the glossary, which defines many of the common healthcare terms that can be confusing. If you choose to enroll in your spouse’s employer-sponsored plan, make sure you have all of the documentation that outlines what is available as well as the dates for open enrollment.

However you choose to enroll, have all of your paperwork in order before applying, including your estimated annual income for the coming year and any health insurance coverage that other members of your household have.

Health insurance is important for everyone to have, even freelancers. Whether you’re getting a new plan, keeping your old one or supplementing it with a healthcare savings account (HSA), the most important thing is to fully explore your options. Make sure that the coverage you can afford will provide the coverage you need.

For more tips on healthcare for freelancers, see our health insurance FAQs for the self-employed.

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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.