IHC: How to Get Health Insurance When You’re Self-Employed (or Launching a Startup or Small Business)

Three in 10 U.S. jobs are held by the self-employed and the workers they hire.[1] Taking the leap into self-employment or starting a small business means figuring a lot of things out, including how you will obtain health insurance.

Obamacare’s state-based and federally facilitated health insurance exchanges serve more than individuals and families. They also serve small businesses and the self-employed. Employers with 50 or fewer employees may offer their employees exchange-based group health insurance coverage through the SHOP Marketplace or their state-based or federally facilitated small business health insurance marketplace.

SHOP, which stands for Small Business Health Options Program, serves small businesses in states that opted into the federally facilitated health insurance exchange, healthcare.gov. Small businesses in states that run their own health insurance exchanges should visit their state-based exchange website to learn about small group health insurance options.

Self-employed individuals who do not have access to group health insurance may wonder if they should purchase coverage through SHOP or a state-based small business marketplace. The answer depends on whether or not your business consists of you alone or you and one or more employees as well as if you want access to additional benefits that can help with out-of-pocket healthcare expenses.

Let’s look at some basic scenarios—one or more of them may apply to you.

1. You are self-employed with no employees (e.g., freelancer, consultant, contractor)

You must apply for an individual health insurance plan through a state-based or federally facilitated exchange or in the private marketplace. If you buy from a state-based or federally facilitated exchange and meet certain income requirements, you may qualify for an Obamacare subsidy (i.e., premium tax credits and/or cost-sharing reductions). Furthermore, your health insurance premiums may be tax deductible.

If you do not qualify for a subsidy, you may be interested in exploring Obamacare plans sold outside the state and federal ACA exchanges. A health insurance producer can help you navigate your coverage options for major medical insurance as well as supplemental benefits.

2. You are self-employed and have employees (e.g., small business, startup)

If you have between one and 50 employees—and, in some states up to 100—you can use the federal SHOP exchange or your state exchange’s small business marketplace to enroll your employees (and yourself) in health insurance plans.[2]However, you must also meet all of the following requirements[3]:

  • You must offer coverage to all of your full-time employees.
  • At least 70 percent of the employees who you offer insurance to must be enrolled in your plan or have coverage from another source. Note that if you do not meet this requirement, you can enroll in SHOP coverage between November 15 and December 15 any year without meeting a minimum participation requirement.
  • You must have an office or employee work site within the state whose SHOP Marketplace you want to use.

In general, employees are, “workers whose incomes you report on a W-2 at the end of the year.”[4] The IRS definition of an employee (common-law employee) is as follows (emphasis as it appears on IRS.gov)[5]:

Anyone who performs services for you is your employee if you can control what will be done and how it will be done. This is so even when you give the employee freedom of action. What matters is that you have the right to control the details of how the services are performed.

If you have a group of two or more, you may be eligible for a group health insurance plan—from the SHOP and small business marketplaces or in the private marketplace. You may select plan options for your group, determine your employer contribution amount and allow employees to enroll through SHOP or your state-based small business marketplace. Small group enrollment is available year-round; however, enrollment must occur by the 15th of the month prior to when health insurance coverage will begin.

Additionally, small business owners may qualify for tax credits if they meet all of the following requirements[6]:

  • Have 25 or fewer full-time equivalent employees
  • The average employee salary is about $50,000 per year or less
  • Pay at least 50 percent of full-time employees’ premium costs
  • Offer coverage to full-time employees through the SHOP Marketplace or a state-based small business health insurance exchange
  • For more information about small businesses and Obamacare, visit healthcare.gov/what-do-small-businesses-need-to-know

3. You want more comprehensive coverage, similar to job-based benefits

If you are looking to build a benefits package more like the one you had through your employer, you may consider the following supplemental products for yourself or your employees.

Critical illness coverage – Receive lump sum cash benefits upon diagnosis of a covered critical illness. Use the payment however you choose—medical bills, household expenses, childcare, fuel and travel costs, and more. Bundled plans including accident medical expense insurance, term life insurance, accident death and dismemberment insurance and accident disability insurance are also available at healthedeals.com.

Dental insurance – Choose from a range of plans that meet your oral health and budgetary needs. Gain access to preventive, basic and major care benefits, depending on the plan selected. Vision benefits may also be available with certain plans.

Hospital and doctor benefits – A fixed indemnity plan, which some refer to as a hospital or hospital and doctor plan, pays fixed benefit amounts to help with covered medical expenses resulting from hospitalization, surgery and certain outpatient therapy services. Benefits may apply per day, per week, per month, per visit or per event, depending on the plan and the benefit that applies.

Medical gap plans – These plans help pay your deductible and other accident- and illness-related costs when a covered accident or critical illness occurs. Coverage is guaranteed issue, and you can use your lump sum payment however you choose—medical bills, household expenses, childcare, fuel and travel costs, and more. Most plans at healthedeals.com cost less than $1/day.

None of these plans are intended to replace ACA-compliant coverage (e.g., major medical insurance, Medicaid, Medicare). However they can help with out-of-pocket healthcare expenses throughout the year.

Don’t navigate your self-employed health insurance options alone. Work with a health insurance producer such as the certified advisors available through healthedeals.com. Call the number at the top of your screen to speak with someone who can answer your questions and discuss your options—no pressure to buy, just friendly expertise. Or, use Agent Finder to search for local assistance.