Self-Employed? What You Need To Know About Health Insurance

In the United States approximately 16 million workers are self-employed. Self – employment can provide an entryway to entrepreneurship and small business ownership as well serving as a preferred option for those wanting more flexible schedules than corporate life can typically provide.

In 2020 it was estimated that approximately 41% of the American workforce worked in a freelance position as a self-employed person. Although many people take on freelance gigs to supplement their primary employment with a single company, about 28% of Americans who worked in freelancing in 2020 did freelance work as their full-time occupation. Regardless of whether this trend is a part of an overarching lifestyle choice as many social pundits suggest, this shift does have significant implications for areas like health care coverage.

In recent US history, most of those in the paid workforce have relied upon employer-sponsored health care plans to help them meet their health insurance needs. As the US experiences this shift from more traditional forms of work into this evolving freelance, or gig, economy there is an increased need for individual health care plans that are not attached to a specific employer.

The Things That Freelancers and the Self-Employed Awake at Night

Although there are clear benefits associated with working as a self-employed freelancer, there are also stresses associated with this type of work. Research indicated that there are a number of things that may be keeping freelancers up at night. The things that freelancers worry the most about are:

1. That they will not be able to put enough money into savings. This fear was the number one concern for 76% of freelancers interviewed in a recent survey. Since the nature of freelance work is one in which the worker is having to sell themselves repeatedly, there is a real risk of months in which they fail to make enough to cover their monthly living costs and save for their future.

2. That they will be unable to save enough to cover their retirement needs. This concern was one of the major concerns identified by freelance workers.

3. That they will not be able to maintain a consistent income. Since freelancers engage in short-term work with a number of clients, there is a real fear, particularly early on in a freelancer’s engagement in gig work, that they will experience months in which they are unable to maintain the level of income they wish to.

4. That they won’t be able to find affordable health care. 

   72% of freelancers asked about their biggest concerns, indicated that they were most concerned about being able to afford health care. Since many workers continue to rely upon their employers for health care insurance coverage, freelancers have a real concern about finding ways to afford health care coverage.

5. Making a fair wage. Just as many traditional workers find themselves unable to get work at a rate they can live on, freelancers often find themselves struggling to obtain a wage for their freelance work that allows them to live the way they wish. Those who are new to freelance work often find it difficult to determine a fair price for the services they provide.

6. Being taxed at a high rate. Just as freelancers struggle with developing a fair wage for their work, they often struggle with the idea of covering the full tax bill for their income. It often takes freelance workers time to understand that they can’t work at the hourly wage they are used to obtaining in traditional work as they are now responsible for all aspects of the taxes associated with their income.

COBRA Health Insurance

Luckily, there are a few options that can support freelancers in their pursuit of affordable health care. Although you will find that your health care coverage options will differ from state to state, there are a few consistencies we can discuss.

If you leave a traditional work situation in which your employer provides a group insurance plan, you have a limited amount of time to opt-in for COBRA or continuation coverage. This coverage allows you to continue health care coverage for yourself and your family members through your former employer.

To qualify for COBRA coverage, you must have participated in your company’s group health insurance plan while working there. Whether you quit your job voluntarily or find yourself without insurance coverage due to a reduction in your work hours or involuntary termination, you can obtain COBRA coverage.

As a “qualified beneficiary” you should receive a letter from your employer or the insurance company they use, informing you of your right to continue insurance coverage under your employer’s plan. You will have approximately two months in which to decide whether or not you wish to continue your coverage under COBRA. If you were employed by a religious organization or a small business with less than 20 employees, you may not be able to obtain COBRA coverage as these organizations are generally exempt from COBRA requirements.

What You Need to Know About COBRA

The cost of a COBRA plan will depend on the type of insurance you had through your former employer. You may be surprised by the cost of your COBRA plan since your employer will have covered much of your plan’s premium cost during your employment. Not only will you be picking up the full cost of your insurance plan, but you may also be paying up to 2% more for administrative fees.

You can expect to be able to use a COBRA plan for between 18 and 36 months. There are a few instances when you will not be able to get COBRA coverage for the full length of time. If your previous employer should go out of business, you will no longer be eligible for COBRA coverage on their health insurance plan. You can also find yourself without COBRA coverage if you fail to make your premium payments or become eligible for Medicare or enroll in a new group health care plan.

Although COBRA coverage is only intended to be a short-term solution, it is often your best option for avoiding periods of disruption in your health care coverage.

Purchasing Health Care Insurance Through the Insurance Marketplace

With the initiation of the Affordable Care Act (ACA), individuals were given the option of comparing and purchasing individual medical health care insurance plans. You will find that you can purchase your health insurance plan during the open enrollment period. This event takes place between Nov. 1and Dec. 15 each year.  For plan year 2022, the open enrollment period has been extended through January 15th.If you experienced what is referred to as a “qualifying event,” you will be able to obtain an insurance plan outside of the open enrollment period. Qualifying events include a loss in health care coverage through your employer or Medicaid, CHIP, or Medicare, loss of coverage through your partner’s insurance plan, changes in the makeup of your household through a divorce, death, or addition to the family, or a change in your residence. You may also experience a qualifying event if you obtained citizenship in the US, were released from jail or prison, joined or left the AmeriCorps, had a change in income that impacted your insurance coverage, or were accepted into a recognized tribe.

Things to Keep in Mind When Choosing Health Care Coverage

The Type of Plan

You will find that knowing a few basics can make choosing the right health insurance plan simpler. There are a few types of insurance plans available to you.

• An HMO, or Health Maintenance Organization, plan requires you to choose a primary care provider (PCP) who will refer you to other providers when needed. Unless you need OB/GYN care or experience an emergency, your PCP will need to refer you to other providers when you need to see a specialist. These plans also offer no out-of-network coverage. Such plans are best for people who lead a fairly stationary life and want to work one-on-one with an individual doctor.

• A PPO, or Preferred Provider Organization, plan doesn’t require you to choose a PCP and doesn’t require referrals to medical specialists. These plans offer coverage for out-of-network providers and are good for those with a more mobile lifestyle. These plans are also better for individuals with uncomplicated health care needs. If you have complex health care needs, you may be better served by having a PCP to support your complex care needs.

• HSA (Health Saving Account)- eligible plans allow you to use your Health Saving Account to pay for your health care expenses. Unless you are paying for COBRA premiums, you may not use HSAs to pay for your health care premiums. You will find that these plans are noted on the marketplace and tend to have higher premium costs.

Understanding Tiers and Categories Associated with Insurance Plans

There are four basic tiers associated with health insurance plans. You will generally find that the premium costs and plan coverage increases as you move up the tiers. You will find that Bronze plans are the least expensive and offer 60% coverage of your health care costs. Silver plans offer you 70% coverage, while Gold provides 80%. You will find that you get the most coverage (90%) when you buy a Platinum plan. In North Carolina, there are only 3 tiers, Bronze, Silver and Gold.

You will also find that the lower health insurance tiers have higher deductibles than the more costly plans.

Aside from the five basic tiers, you can also find what is referred to as “catastrophic health plans.” These plans are a cost-efficient way for healthy people to protect themselves from the potentially crippling costs of unforeseen major illnesses and accidental injuries. You should note that you must be younger than 30 years old or experience a situation that qualifies you for a hardship exemption to qualify for this health insurance option.

Educate Yourself about all of the Costs Associated with Your Health Insurance Plan

When we talk about the cost of health care insurance, we are generally only thinking about the cost of the monthly premium. However, the deductible associated with your insurance plan can have a huge impact on your ability to stay within your monthly budget. Your deductible is simply the out-of-pocket costs you are expected to meet before your insurance plan will start covering your medical costs. As stated in the last section, you can expect your deductible costs to be higher with the lower tiers of health insurance plans.

You may be surprised to find that your deductible for a low-tiered plan can run as high as $7000. So, if you are a freelancer who is most interested in containing your monthly medical costs, buying a low-tier insurance plan may not actually be in your best interests.

The other cost you are going to want to be mindful of is your copay. Your copay, as you most likely know, is simply the portion of your medical care you are required to pay yourself. Be sure you understand how much you are expected to pay for services you can anticipate. If you have a plan that requires you to pay a percentage of the cost of care, say you must pay 50% of all tests and x-rays, you may want to figure out what these things can be expected to cost in your area. You may find that you are more comfortable with paying a flat rate if the overall cost of the medical expenses you can anticipate are particularly high.

Make Yourself Aware of Savings Options

As a freelancer, you are going to want to pay particular attention to premium tax credits. When you buy your health insurance through the Marketplace, you may find that you’re eligible for a tax credit. This credit will only lower your premium costs and is based on your income estimates for the coming year. If you make between 100 and 400% of the federal poverty level, you will qualify for a tax credit in all 50 states.

You will also want to determine if you will qualify for a “Cost Sharing Reduction (CSR).” Referred to as “extra savings” on the Marketplace, a CSR is a discount that can lower your deductible, coinsurance payments, and copayment requirements. If you find that you qualify for this discount (don’t worry, this will be determined when you answer questions on the Marketplace application),  you will need to enroll in a plan in the Silver tier to get these savings. If you qualify for a CSR and enroll in the appropriate level plan, you will also have a lower out-of-pocket maximum limit. Simply stated, this means that you are required to pay less out of your own pocket before your insurance plan will take over paying 100% of your covered medical costs.

You can use any or all of the tax credits you qualify for. However, be aware that you may have to pay back any difference between your estimate and the reality of what you qualify for after your year is over. However, if you find you didn’t make as much as you anticipated, you will get the difference back at the end of the year when you file your taxes. To qualify for these cost-saving options, you must use the Marketplace to purchase your health insurance.  Most agents have access to the tools needed to assist with this extra step.

Other Options to Consider

1. Medicaid: If you live in a state with extended Medicaid coverage, this may be an option for you.

2. Join a family member’s health insurance plan. If you are under the age of 26 or have a spouse with health care coverage, you may want to consider having a family member include you on their plan.

3. Out of country coverage: If you are lucky enough to be a globe-trotting freelancer, you will want to consider insurance coverage for the time you spend outside of the US. If you make short trips, you may find travel insurance sufficient. If, however, you find yourself in the enviable position of traveling for long stints while pursuing your freelance career, you will want to consider International Health Insurance Coverage.

Would you like some help choosing a health insurance policy that would work best for your needs as a self-employed person or a freelancer? The agent on this webpage can help- at no cost to you! Book an appointment today.