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Navigating Insurance for the Self-Employed

In the United States, self-employed individuals and business owners face unique challenges when it comes to securing health insurance. Unlike employees of larger corporations, who often have access to employer-sponsored health insurance plans, the self-employed must secure their own path to coverage. To help members navigate the health insurance landscape, we have compiled an overview of the various health insurance options available to self-employed individuals and businesses. This guide focuses on little-known ways to get coverage, the Health Insurance Marketplace, open enrollment periods, supplementary plans. We also detail the financial benefits NASE membership provides that can save you thousands of dollars when shopping for coverage.

Understanding Your Health Insurance Options

The insurance option that is right for you depends on a variety of highly individual factors: your age, income, whether you are a small business owner or an individual. Although most self-employed people use the health insurance marketplace to get coverage, let’s briefly explore some of the lesser-known options available to the self-employed:

Self-Insurance

Self-insurance, where individuals or businesses set aside funds to cover their own risks instead of buying insurance, is growing in popularity for its potential cost savings and control over risk management. However, only about 11% of small businesses/family businesses use this approach, largely due to the financial risks and the need for significant reserves to cover potential claims. The strategy is even less suitable for individuals or micro business owners, as most lack the necessary financial resources to handle significant unexpected expenses from health issues, accidents, or property damage. Despite the appeal of saving on premiums, the financial instability that can result from self-insuring makes it an impractical choice for the average person. This option is only recommended for individuals or small businesses with a stable cash flow and high income. Even then, hospitals and drug companies often refuse to negotiate their official (chargemaster) rates with individuals, even while charging a fraction of that price to insurers with greater negotiating power.

Savings Options: HRAs and HSAs

In contrast to self-insurance alone, savings options of HRAs and HSAs empower consumers to have with greater discretion over their health care funds. There are two primary savings options available, each governed by distinct U.S. tax law guidelines:

• Health Reimbursement Arrangement (HRA): These plans allow for employers to pay for qualified medical expenses incurred by eligible employees including deductibles, co-payments, premiums, etc. Employees choose and pay for their own medical expenses and then request reimbursement from the employer.  These plans are extremely flexible and allow the employer to set limits as long as they meet applicable non-discrimination rules.  Included with NASE membership are tools to set up an HRA plan for free.
• Health Savings Account (HSA): Contrary to HRAs, HSAs can be established by individuals, with employers also able to contribute. HSAs are notable for being owned by the employee, offering a valuable tool for self-employed professionals. To open an HSA, individuals must be enrolled in a qualified HDHP. The contributions are tax-deductible, and for 2024, the maximum contribution limits were set at $4,150 for a single plan and $8,300 for a family plan, with an additional $1,000 allowance for those 55 and older. Unlike HRAs, HSAs have specific eligibility requirements, including restrictions based on age and coverage under other health insurance plans.

Many consumers combine HRAs and HSAs with a High Deductible Health Plan (HDHP), which allows for coverage for catastrophic care combined with low premiums compared to other plans. It does, however, come with a high deductible, so you will need to contribute a substantial amount before the plan starts paying for your care. These plans provide significant tax advantages for entrepreneurs focused on growing a business.

Medicare and Medicaid

It is important to remember that some self-employed individuals have the opportunity to access government-sponsored health insurance plans like Medicare and Medicaid. Medicare is available to individuals who are 65 years or older, as well as to younger people with certain disabilities or conditions, such as End-Stage Renal Disease. On the other hand, Medicaid eligibility is primarily determined by income level and varies by state, aiming to assist those with limited income and resources.

Both programs are intended to be accessible for those in need, offering various coverage options to support health and well-being. While enrolling in these programs is a personal choice, self-employed individuals building a business should consider their health needs, financial situation, and the specific eligibility requirements of each program to make an informed decision.

The Health Care Marketplace: Best Choice for Most Self-Employed Individuals

Although the aforementioned options work well for many people, most self-employed individuals and businesses will either not qualify or find these options appropriate for their situation.

Most self-employed individuals are best off looking for an individual or family plan on the health insurance marketplace, healthcare.gov. Established by the Affordable Care Act (ACA), it is a key resource for self-employed individuals seeking health insurance. It offers a variety of plans from private insurers that cater to different needs and budgets. Plans are categorized into four “metal” levels: Bronze, Silver, Gold, and Platinum, each offering a balance of monthly premiums and out-of-pocket costs.  Self-employed individuals can compare plans based on premiums, deductibles, co-payments, and coverage options to find the best fit for their health care needs and financial situation. There are also tax credits available to qualifying individuals to help ease the cost of care.

Bronze: High-Deductible Health Plans

Most “Bronze” plans sold on the health insurance marketplace are the aforementioned HDHPs, which are characterized by higher deductibles than traditional health insurance plans, which in turn lowers their premium costs. After you hit the deductible, the insurer will pay 60% of medical costs, while you pay 40%. This model has seen a remarkable uptick in adoption over the past two decades. In 2004, only 4% of Americans were enrolled in a HDHP, but that number had risen to 29% of all workers by 2016. Today, due to rising health care costs and premiums, over 50% of workers are enrolled in HDHPs.  These plans are often paired with savings options like aforementioned HSAs to provide a financial cushion for the high deductibles, leading to their designation as consumer-directed health plans.

Silver, Gold, and Platinum Plans

The remaining plans on the healthcare marketplace offer progressively lower copays, coinsurance costs, and deductibles in exchange for higher premiums:

Silver Plans
The insurer covers 70%, you cover 30%. Silver plans offer moderate monthly premiums and costs, with lower deductibles than Bronze. They’re a good choice if you’re eligible for cost-sharing reductions, balancing between premium costs and coverage for routine care.

Gold Plans
The insurer pays 80%, you pay 20%. With high monthly premiums but lower out-of-pocket costs when you need care, Gold plans are suited for those who expect to use their insurance frequently and prefer to pay more monthly for extensive coverage.

Platinum Plans
The insurer covers 90%, you cover 10%. These plans have the highest monthly premiums but offer the lowest costs when you receive care, with very low deductibles. Ideal for those with significant healthcare needs who are willing to pay premium rates for nearly full coverage.

Each of these plans have tradeoffs, but the variety of plans available for individuals, small business, and microbusiness owners makes healthcare.gov the preferred choice when looking for insurance.

How To Sign Up For a Health Care Marketplace Plan: Open Enrollment

Once you have decided on the type of plan you want, it’s crucial to be aware of the open enrollment period for the Health Insurance Marketplace. Open enrollment typically runs from November 1 to December 15 each year, with coverage starting on January 1 of the following year. During this period, individuals can enroll in a new plan or make changes to their existing plan. Special enrollment periods are also available for those who experience qualifying life events, such as marriage, birth of a child, or loss of other health coverage.

Supplementary Plans

In addition to standard health insurance plans, self-employed individuals may consider supplementary plans to cover additional health care needs. These can include dental and vision insurance, critical illness insurance, and short-term health insurance plans:

• Dental and Vision Insurance – These plans cover routine and preventive care specific to dental and eye health, helping manage costs of treatments, eyewear, and exams not included in standard health plans.
• Critical Illness Insurance – This type of insurance provides a lump sum cash benefit upon diagnosis of a severe illness, aiding in covering the extensive costs of treatments and financial obligations beyond regular health coverage.

Short-term Health Insurance Plans – This option offers temporary health coverage to bridge gaps between long-term policies, with a focus on immediate, short-term health care needs rather than comprehensive coverage.