Guide to the Best Freelancer Health Insurance
If you live in the US, chances are you are at least aware — if you don't already suffer from — the large healthcare costs in the country. Those of us who are comfortably nestled in something that passes for a stable full-time career may be less affected, due to corporate health insurance plans being part of the benefits package of many major companies. The self-employed, on the other hand, are not so fortunate.
What self-employed folks need to know about health coverage
The first and most important thing is that, with no company coverage, you will need to navigate the independent contractor insurance marketplace all on your own. This can be a scary task and one that many freelancers will simply shrink from. After all, freelancers are already very busy people with much to do.
On paper, an extra task to take care of that involves a huge amount of research so that you can pay for something you hope to never actually need seems pretty foolish, right? However, it is strongly recommended that you take the dive and take care of this, for your future's sake.
What happens if you don't have coverage?
For a start, there was a time when having coverage was considered mandatory from a national standpoint. If you did not have health insurance coverage, you would have to pay a penalty on your tax return. This was known as the "Shared Responsibility Payment". Nowadays, this is not a concern on a national level. Some states, however, may still have a similar obligation in place. Be sure to check your local laws accordingly.
Whether you are legally obligated to do so or not, it is still important to get healthcare coverage. Even if you are in excellent health currently, one bad day can send your whole life on a very nasty downturn.
If you are in an accident or come down with any serious medical condition, all of a sudden the strength of your insurance policy will be the only thing cushioning the blow of overwhelming medical expenses that almost no American is adequately equipped to bear alone.
Worse, if your condition affects your ability to work, you won't even be able to rely on your freelancing to keep you afloat through normal expenses. This is to say nothing of the adverse affect that all of this would have on your mental health.
Thankfully there are some health care options that can help relieve this burden.
What are your self-employed health insurance options?
If we're being completely honest with ourselves, the first thing that is important to acknowledge is that affordable health insurance is very near to a fantasy. To make a simple observation, a health insurance company is a business first and foremost. As such, its first priority is to its own financial growth. This you must understand in order to temper your expectations when navigating the labyrinth of insurance plans that are your options.
You will be faced with hefty monthly premiums, high deductibles when you actually make use of your coverage, and copays on all of your prescribed medications. Your health insurance premiums will be even higher if you are found to have a pre-existing condition. Your insurance agent is not your friend, and your insurer is not your protector.
But going without insurance is a gamble that you cannot afford to take. All of these expenses are simple facts of life, and trying to skip out on them is likely to eventually cost you everything.
The point is that while picking the right plan with the right coverage is important, it is also of utmost importance that you are always growing your freelance business so that you can afford to pay all of those fees.
Now, let us finally get on to your individual plan options as an independent contractor.
This one is generally considered to be a temporary stopgap plan during the transitionary phase between two major phases of your professional life. COBRA (also known as an acronym of the consolidated omnibus budget reconciliation act) coverage is, to put it simply, an option for continuation of an existing company insurance plan after leaving a full-time employment position. This is done by converting the company's group plan to an individual plan.
There are several caveats to this. One is that, naturally, you have to have already been employed in a position that afforded you group health insurance benefits. For younger generations - particularly those inclined to get into freelancing in the first place - this is a fairly tall order, given that such positions seem to be getting fewer and further between. Sufficiently small businesses may not offer healthcare benefits in the first place.
Another issue is the cost. We have established that all health insurance is going to be costly to one degree or another, but COBRA plans will be pretty jarring if you are used to the price structure of the same plan under full employment. This is because normally the plan would get a partial subsidy from your employer, whereas outside the company you are covering the full premiums yourself. For these reasons, this is primarily intended for people transitioning between two full jobs. It is still an option, though, for employees-turned-freelancers who are not yet ready to choose their own plan.
For those very much on the other end of the spectrum of fates, Medicaid is a program for those with very low income. Each state owns and operates its own variant of the program, with some help from the federal government. Eligibility requirements and extent of benefits will vary from state to state, so be sure to research the program variant that is local to you to determine if it is an option.
Depending on your location, you may be able to get full coverage of almost all health expenses through your state program. This is a luxury that most Americans can only dream of, and can be literally lifesaving. Surprisingly, this serves as a double-edged sword of sorts.
Because getting full medical coverage is such a rare thing, the idea of giving it up for anything can be a hard pill to swallow. The problem with this, of course, is that you can only make so much money while still qualifying for the program.
As a result, many people who receive Medicaid benefits willingly choose to remain in poverty rather than trying to climb out of it - falling short of their potential and settling for a standard of living well below what they could aspire to - in exchange for security from terrifyingly massive medical bills. This is especially true of those with pre-existing conditions which would be highly expensive to care for while trying to progress in their careers.
While in some cases it may be feasible to manage a decently comfortable living while meeting the income requirements for the program, in states with higher costs of living - such as, say, New York - remaining in poverty for such purposes may lead to appallingly low standards of living conditions which, ironically, could lead to increased need for the services provided by such a program. Take this into account when considering Medicaid as a coverage option.
Not to be confused with Medicare, a program for the elderly and disabled. If you are eligible for Medicare and do not already have it, be sure to look into that before and in addition to any other options.
If a close family member has an existing healthcare plan, you may be eligible to be included in their coverage under certain circumstances.
One such circumstance is if you are under the age of 26 and a parent has health insurance, you may be able to be covered by the same plan. If you are young enough, be sure to check in with your parents about it.
Another scenario is marriage. Nowadays marriage gets a bad rap due to the ways it can end up going poorly for everyone involved, but there are still good practical reasons to get married. If you are a freelancer and your domestic partner is an employee of a position with health insurance benefits, marriage may be a viable solution to get your own medical coverage.
Be sure to look over the conditions of the insurance plan to determine how this will affect your partner's premiums, and of course consider the other variables involved in such a union before determining whether such a path is right for you. Don't forget to consider the tax implications as well when making that decision. Depending on your respective tax brackets, marriage could either save you quite a bit in contractor taxes or could actually cost you more. Also consider whether to open a life insurance policy as an extra measure to protect your spouse.
The health insurance marketplace
The last and (for many) most unpleasant option aside from staying uninsured, the Health Insurance Marketplace is for everyone who doesn't fulfill the fringe conditions to fall into the other categories. While navigating the marketplace can be an anxiety-inducing nightmare, it is a far better option than having no insurance at all.
The marketplace is a product of the Affordable Care Act (also known as ACA or Obamacare) which provides the potential for coverage options for anyone able to pay for them - regardless of form of employment.
The first hoop to jump through to benefit from this option is making sure to enroll at the right time. There is one open enrollment period each year, from the first of November to about halfway through December.
Outside this time frame, you can only obtain coverage through the marketplace within a special enrollment period. These periods are within roughly 30 to 60 days of a Qualifying Life Event, timeframe dependent on your location. Qualifying Life Events include, but are not limited to, marriage, divorce, childbirth, and job loss.
Another issue is that, while often less expensive than COBRA plans, they are usually still costly as previously discussed. One way to alleviate this burden is with an HSA: a health savings account. If you open an HSA you will be able to make contributions to it that will be exempt from tax. These funds can then be used to pay for qualifying medical expenses. While you cannot pay your insurance premiums directly with the funds from this account, it can be used to pay for copays and deductibles, reducing your out-of-pocket expenses.
Additionally, under certain circumstances you may qualify for premium tax credits that further reduce your tax burden based on your insurance marketplace premiums.
Aside all this, it can simply be difficult to choose the right plan for you. If you are a resident of New York, you might consider seeking coverage through The Freelancers Union. The union provides access to plans specifically selected for freelancers in the NY area. They are a bit pricey, but if you live in that area hopefully you can afford the little bit of extra expense.
Hopefully you have learned a few things that will help you to determine the path of least resistance to the right medical coverage for you. If you would like more in-depth information, you can always rely on healthcare.gov for up-to-date info.
Sign up for 1099 Tax University
Get the tax info they should have taught us in school
Tax filing for freelancers and side hustlersGet started→
At Keeper Tax, we’re on a mission to help freelancers overcome the complexity of their taxes. That sometimes leads us to generalize tax advice. Please email firstname.lastname@example.org if you have questions.