Self-employed individuals today can include independent contractors, freelancers, and gig workers. All describe self-employed workers who earn income and don’t have any employees of their own. Additionally, these workers generally don’t have traditional avenues to group health insurance (i.e., through an employer). But options are available for self-employed individuals looking to get health coverage.
What are the health insurance options for self-employed workers?
Despite the high number of self-employed individuals in the workforce, there are no laws guaranteeing them the safety-net benefits that their counterparts who earn W-2 income may have available to them. If you don't currently have healthcare benefits, there are a few ways to get self-employed health insurance. They include the following:
Using the health insurance marketplace
In 2014, the Affordable Care Act (ACA) introduced health insurance marketplaces, also known as healthcare exchanges. The marketplaces provide health plan shopping and enrollment services of government-regulated and standardized healthcare plans. A state determines which insurance companies meet its exchange's criteria to participate.
The ACA is tailor-made for situations where individuals and families are not covered by employer group plans. Those who are self-employed and want to take advantage of state exchanges can access insurance plans and enrollment services through websites, call centers, and in-person help at HealthCare.gov. The marketplace has an open enrollment period for the following year that typically runs from November 1 to December 15 (note that individuals have to enroll during the open enrollment period, or they miss their opportunity to enroll until the following year unless something happens that qualifies them for a special enrollment period). Plans sold during the open enrollment period start January 1.
Getting extended coverage through COBRA
The Consolidated Omnibus Budget Reconciliation Act, or COBRA, was passed in 1985 as a stopgap measure to help qualified employees retain health insurance coverage for 18 to 36 months after a qualifying event. Such events include:
- Termination or reduction of hours that result in the loss of access to a group healthcare plan.
- Divorce or legal separation from the covered employee.
- Death of a covered employee.
- Covered employee becoming entitled to Medicare.
- Child's loss of dependent status.
There's a 60-day window from the qualifying event to decide whether you want to use COBRA. It's important to note that COBRA costs are covered by you, not the employer that previously covered the health insurance plan.
Note that there may be state-level health care continuation for individuals who work for employers not subject to COBRA.
Factoring in the costs of health insurance for freelancers
Of course, pursuing individual health insurance is an option, but it's often costly. There are numerous elements that may influence the monthly expenses you may incur with self-employment health insurance:
- Premium: the amount of money you pay for your policy.
- Deductible: the amount of money you will pay before the insurance is effective and the health insurance plan covers the costs.
- Coinsurance: the percentage (e.g. 20%) of the cost of a covered healthcare service that you pay after you've paid your deductible (depending on plan type, individuals may pay a co-payment or coinsurance without meeting a deductible).
- Co-payments: a fixed amount (e.g. $20) that you pay for a covered healthcare service after you've paid your deductible (depending on plan type, individuals may pay a co-payment or coinsurance without meeting a deductible).
- Out-of-pocket maximum: the most you are responsible for paying for covered services in a plan year.
- In-network providers: a list of physicians, healthcare service providers, and hospitals that your plan has contracted with to provide medical care to its members, usually at a discounted rate.
- Out-of-network providers: physicians, healthcare service providers, and hospitals that are not on your healthcare plan's list of contracted providers and will be covered at a lesser percentage or not at all under your plan.
States that require health insurance for self-employed workers
States that have an individual mandate include:
- New Jersey
- District of Columbia
- Vermont (effective as of 2020)
- California (effective as of January 1, 2020)
- Rhode Island (effective as of January 1, 2020)
States considering making individual health insurance a requirement
Legislation that includes language to implement a state-level individual mandate has been introduced in:
- Connecticut (SB 984, 2019)
- Washington (SB 5840, 2019)
- Oregon (HB 2009, 2019)
While legislation was introduced in Hawaii in 2018 to implement an individual mandate, similar legislation is not currently introduced.
The importance of having self-employed health insurance
Annual health insurance costs may lead you to question whether the investment is worth it, especially if you're healthy and don't require ongoing prescription drugs. Although you may seem healthy, an accident can happen where you need immediate medical care, or a medical condition can develop unnoticed that may have been avoided with routine, preventable health care. These events can be much costlier — if not financially devastating — than maintaining a freelancer health insurance policy.
Although the penalty associated with the individual mandate of the ACA has been reduced to $0, there are distinct disadvantages to forgoing health insurance, such as:
- Unexpected health expenses. Even healthy and cautious individuals are susceptible to unexpected health expenses. A car accident, cancer, appendicitis, getting sick, even slipping and breaking a bone all may require immediate medical care.
- Health risks to you and your family. Many individuals who don't have health insurance put off going to the doctor for "minor" problems, but those issues can turn into something much worse as time goes on. Such negligence can cost you more in the long run, both in terms of money and your quality of life, and adversely affect your family.
- Bankruptcy from medical debt. Large medical bills can subject you to high levels of stress on your mental and financial health. These financial burdens can affect not only your quality of life but also your business, potentially bankrupting you financially and emotionally.
Learn more about insurance and benefits available to self-employed individuals.
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