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Your Guide to Self-Employed Health Insurance

Your Guide to Self-Employed Health Insurance

Discover why health insurance is crucial for solopreneurs in our comprehensive guide. Learn about self-employed health coverage, liability insurance, finding the right policy, and cost-saving strategies.


Solopreneurs need health insurance. Here's why. 

Becoming a solopreneur is exciting – but there are still certain aspects of leaving behind your cushy 9-5 that can feel downright daunting. What’s likely at the top of the list? Giving up your employer-paid health insurance.

We get it. So – from debunking the difference between general liability insurance and self-employed health coverage, to finding a health care option that's right for you, taking advantage of tax deductions and more – we've got you covered with our comprehensive guide to self-employed health insurance. 

First up: liability insurance for your small business

When it comes to insurance, many people think about protecting their physical property – like their cars, homes or business assets including computers, cameras or other expensive equipment. But liability insurance is designed to protect against non-tangible risks that you and your business may face, including bodily injury, advertising injury, or property damage lawsuits.

Here are some common types of small business insurance that protect against liability:

  • General liability insurance – designed to cover costs if someone is injured at your place of business or someone else’s property is damaged as a result of your business
  • Professional liability insurance – for defending against lawsuits that stem from real or perceived professional negligence, like forgetting to disclose important details to a client
  • Commercial auto insurance – to cover both the cost of physical damage in the event of an accident, and any lawsuits if someone else gets injured when you’re at fault  

But what happens if you get hurt or become sick? Many independent contractors get so busy protecting their businesses against other risks that they forget that general liability insurance doesn't protect their own health – so they’ll be left on the hook for unexpected medical bills, prescription drugs, and routine expenses like dental and eye care. And these costs can add up quickly. That’s where self-employed health insurance comes in.

Next up: Self-employed health insurance

Most of us rely on our employers for health coverage, but when you ditch your employee badge to do your own thing, you can purchase individual self-employed health insurance (as long as you don’t have access to any other coverage – including your spouse’s). 

Important note: If you have staff and are looking to purchase coverage for both you and your employees, you’ll want to invest in a group insurance plan for your small business (rather than an individual one).

Finding the right self-employed health insurance policy 

Not sure where to look? Here’s a few options to get your started: 

  • Federal or state marketplaces: Thanks to the Affordable Care Act (ACA), the federal government offers a central hub where self-employed individuals and small business owners can go to learn about both the private and publicly-funded health insurance options available to them.

You can fill out an application directly on the website and choose from a variety of plan types and tiers depending on your needs and income level. Plus, all the policies offered on this site are Qualified Health Plans (QHPs), which means they cover all essential medical expenses (identified by the U.S. government), and they won’t limit your annual or lifetime coverage.

Just keep in mind: Some states rely on this marketplace resource, but others operate their own platforms instead – so be sure to check what’s available in your area.

  • Federal programs (for qualifying applicants): Depending on your circumstances, you may qualify for government assistance to help pay for your self-employed health insurance costs. The two main plans offered by the U.S. government are:

o   Medicaid: This is a needs-based federal assistance program that provides free health insurance to those who qualify. Participation is largely based on income (and in most states, it’s only available to those living well below the federal poverty level), but factors like health, disabilities, and dependents can also impact eligibility. Enrollment is open year-round and, to find out if you qualify, you can fill out the standard marketplace application available on the site.

o   Medicare: This federally-funded health insurance option aims to help adults 65 years and older access the care they need. If you’ve made Medicare contributions (through your payroll taxes) for at least 10 years, you can qualify for free access to hospital, hospice, and in-home care (“Medicare Part A”), but you may need to pay subsidized premiums to access other plan benefits – like prescription drug coverage (“Medicare Part D”), and coverage for doctor’s visits, outpatient care, and preventative screenings (“Medicare Part B”).

As long as you’re eligible to receive Social Security benefits when you turn 65, you’ll be automatically enrolled to receive Medicare Part A and B, but you’ll need to enroll for the other portions separately if you’re interested.

  • COBRA: The Consolidated Omnibus Budget Reconciliation Act (!), or COBRA for short, is a regulation that enables you to keep your employer-based health plan temporarily for up to 36 months after you leave your job. It’s a great option if you’re only planning to freelance or consult temporarily while you search for full-time work. Just keep in mind that your premium will be higher than it was when you were an employee – because your employer will no longer be subsidizing the total cost.

You should receive a COBRA election notice from your previous employer no more than 45 days after your work officially ends, but you’ll need to act quickly because you only have 60 days from the time you lose coverage to enroll.

  • Independent insurance agent: If you don’t qualify for subsidized health insurance and you’re not comfortable deciding totally on your own, that’s okay too. Consider reaching out to an insurance agent or broker who can help identify which companies offer private health insurance plans with the best care and coverage you can afford.

Ways to save on self-employed health insurance

If you’ve just set out on your own, self-employed health insurance can be an intimidating expense. So, we’ve compiled a list of options to help reduce your premiums.

  • Health insurance deduction: This is a big one. If you’re an independent contractor, freelancer, or otherwise self-employed individual who pays for your own health or dental insurance coverage, you can deduct 100% of your premiums from your taxes to lower your adjusted gross income (AGI). Since you’re only taxed on your AGI (not your total income), taking advantage of this deduction can yield some pretty serious savings. Plus, you can also deduct a portion of your long-term care premiums, and any health-related premiums for your spouse, dependents, and children (up to age 27!).

A few things to note: you can only take advantage of this tax deduction if you are NOT eligible for any other health insurance plan. So, if you have a job that offers health insurance, or you’re eligible for coverage through your spouse’s employer, you can’t opt to go this route instead. You also can’t deduct more than your taxable income and you can’t qualify if you have a tax loss during the year you’re looking to claim.

How it works with self-employment tax  

Since the health insurance deduction applies to your personal taxes, you won’t include it on your Schedule C if you pay self-employment tax. Instead, use your Schedule C to determine your business income but then deduct your health insurance premiums in the “Adjustments to Income” section on Schedule 1 of Form 1040.

  • Itemized deductions: If you find that you’re paying out of pocket for a lot of additional expenses on top of your health insurance premiums, you may want to itemize your deductions instead of or in addition to using the simplified premium deduction we just mentioned above. If you go this route,  any medical and dental expenses that exceed 7.5% of your adjusted gross income are deductible on your Schedule A form. Just keep in mind that you can’t claim the health insurance deduction in two places – so you’ll either need to claim it all on your Schedule A, all on your Schedule 1, or split it between the two.
  • Premium tax credit: Unlike the tax deductions we just mentioned, this subsidy allows you to lower your health insurance premium in advance each month (unless you’d prefer to wait for a refundable credit at tax time). It only applies to health insurance plans bought through official federal or state marketplaces, and you’ll only qualify if your household income is less than 400% of the federal poverty level – but if this sounds like you, you can submit Form 8962 to the IRS alongside your tax return to get access to this benefit. Keep in mind that you can’t double-dip here either: if you use this tax credit to subsidize a portion of your premiums, you’ll only be able to claim your out-of-pocket costs on your tax return.

Bottom line: Your health is important

Being your own boss comes with all sorts of challenges, but you can only tackle them if you're healthy – so don't discount the importance of a solid health insurance plan. Plus, you might also want to think about eliminating unnecessary stress with Practice – an all-in-one client management system that streamlines your contracts, scheduling, invoicing, file storage and more. See how it can help your client-based business and bring you more peace of mind today!

Disclaimer: The information is for educational purposes only. If you need insurance, tax or legal advice, please contact a licensed insurance agent and/or a legal or tax professional.

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