When you’re self-employed, you don’t have a human resources department to pick your insurance plan. As the boss, it’s up to you to choose your own health insurance and make sure that you and your family, if you have one, are adequately covered for anything from a minor ear infection to a catastrophic illness or injury.
While we all hope to stay healthy, odds are you will be sick, injured, or need some form of medical care at some point. So even if you’re fit as a fiddle, it’s important to have health insurance for expensive worst-case scenarios and annual care like a physical and flu shot.
Here’s a look at your options of getting coverage when self-employed so you can rest easy with the right health insurance for your unique needs.
Dealing with health insurance when self-employed
The biggest thing that held me back from quitting my job and taking my side hustle full-time was health insurance. For years, I pondered how I could afford 100% of the cost to cover myself, my wife, and my growing family.
Due to health conditions that I was born with and completely out of my control, my best option for health insurance was to go through the healthcare marketplace for my state, which was established as part of the Affordable Care Act, aka Obamacare.
Your healthcare needs may be very different from mine. Regardless, it’s essential to have adequate health insurance coverage for anything from a mild illness to more serious problems like broken bones, cancer, or a hospital stay for COVID-19.
Employees at large companies typically have just a few health insurance choices picked by their employer’s HR department, and employers usually pay for a big chunk of the cost. When you’re self-employed, you have to decide everything and pay for everything, for better or worse.
Picking your own employer health plan
The first step in getting covered is picking your health insurance plan, which you may not have ever needed to do for yourself. Before diving into plans and pricing, take some time to figure out your needs. Whether it’s just you or you and a family, list out your specific healthcare needs and what’s important to you in a plan.
Consider factors including:
- Keeping your same doctors: Some people want to stick with favorite doctors while others are fine switching to doctors assigned by their insurer.
- Where you can get care: PPO plans generally let you pick your doctors and hospitals, though network rules usually apply. In contrast, HMO plans restrict you to doctors employed by the insurance company.
- What type of care is covered: Some plans are bare-bones with high deductibles and only help after a major expense. Others are more comprehensive and cover more medical needs.
- How much you can afford in monthly premiums: Premiums are the monthly cost you pay to stay insured. Higher premiums generally lead to better coverage and lower deductibles.
- How much you can afford in a medical emergency: Many insurance plans have a deductible that you have to pay before coverage begins. Take note of your savings and what you can afford if picking a plan with a high deductible.
Where to shop for self-employed health insurance
Now that you know what you want, it’s time to get shopping. It’s a good idea to shop around and compare several options, so you know you’re getting the best coverage for your needs. These are the most common places to shop:
- Affordable Care Act marketplace: The “Obamacare” marketplace at healthcare.gov or your state’s local version are the place to look for compliant plans that include preventative coverage, maternity coverage, pre existing conditions, and kids up to age 26, among other benefits.
- Insurance agent or broker: Insurance agents and brokers work directly with insurers and can give you multiple competing quotes.
- Online comparison sites: Online comparison sites allow you to enter your information and compare insurance options.
- Insurance company websites: Some insurers sell directly to consumers. Insurance company websites usually list all coverage options and costs, as well as online applications.
Beware of health ministries and other non-traditional options
You may come across alternative health coverage options called health sharing ministries. While these organizations give you some form of health coverage for a much lower cost, plans are typically extremely limited, exclude preexisting conditions, and work more like pre-Affordable Care Act insurance plans where they reject many claims.
A quick Google search for “healthshare horror stories” yielded thousands of stories of people denied coverage for common needs like maternity care and hospital stays for kids. These plans are legally not considered insurance, and no payout is guaranteed.
Types of health coverage when you’re self-employed
There are several types of health insurance you may come across from major insurance companies and in the healthcare marketplace. It’s important to choose the right kind of insurance for the way you want to receive care.
A Preferred Provider Organization (PPO) is a type of insurance where you can go to any doctor or hospital you choose, but you’ll pay less if you select a provider in your insurer’s network. Examples include UnitedHealthcare and Blue Cross Blue Shield. This is the type of insurance I picked because I want the option to go to the best doctors in my area, even if it costs a little more than an HMO.
Health Maintenance Organizations (HMOs) are health insurance plans where your insurance company is your healthcare provider. You can only go to doctors and hospitals in the network outside of an emergency. An example of an HMO is Kaiser Permanente.
A less common type of insurance is an Exclusive Provider Organization (EPO). An EPO works like a combination of a PPO and an HMO. You go to independent doctors and hospitals, but only from a list of in-network providers outside of emergencies. Point of Service (POS) plans offer a network of providers and require a referral from your primary care doctor to see a specialist.
How to pay for your health insurance with an S Corp
After signing up, you will have to pay your insurance bill to begin coverage. This is where it’s important to put on your business-owner hat to make sure things are handled correctly.
If you’re an S Corp, your health insurance should be paid for by the business using a business account. You could use a business credit card or checking account, for example. I use my business credit card to earn a boatload of miles and points for an expense I would have to pay anyway.
When you pay from a business account, your health insurance cost is recorded in your accounting records as an employee benefit expense, which lowers your business’s taxable income. With lower taxable income, you pay less in taxes. Depending on your health insurance cost, those tax savings could be significant.
How to pay for your health insurance as a sole proprietor or LLC
When you’re a sole proprietor or LLC, you’ll pay for your health insurance through your personal account rather than your business account. Then, you’ll write off your qualifying health insurance premiums on your personal taxes.
Take note, you can only write off your health insurance premiums if you and your spouse don’t qualify for employer-subsidized health care. Also, the amount you deduct can’t be more than your net profits.
Don’t forget the Affordable Care Act credit at tax time
Before my 2020 taxes, I paid for my health insurance with a personal account and took advantage of the self-employed health insurance deduction that most sole proprietors and LLC owners would use. My income and tax situation changed in 2020, so I moved my health insurance into the business, which I probably should have done all along.
The way the cookie crumbled for 2020, I qualified for the Affordable Care Act tax credit, which covered a significant portion of my health insurance cost for the year. Considering my family’s Silver PPO plan costs about $2,000 per month, any dollar I can get back is greatly appreciated.
Many households choose to get the Affordable Care Act tax credit as a monthly contribution to their health insurance premium. While I have this option, I prefer to get the credit as a lump at the end of the year rather than risk paying it back if my income goes up beyond where I would qualify for the credit.
If you have a high insurance payment relative to your annual income, you’ll likely qualify for this credit too. If you’re not sure, ask your Collective tax expert during your yearly tax preparation, a benefit included for all Collective members.
Handling Self Employed Benefits Like a Boss
When you work for a big company, you deserve health insurance coverage. It’s part of your contract with your employer and a part of your compensation package. When you work for yourself or your own S Corp, you still deserve health insurance coverage, and it should still come as part of your total compensation package. But when you’re the boss, you have to take care of everything yourself.
While that means you have to pay the full cost, you also get the freedom to choose any insurance plan you want. Health insurance is expensive, but going without it is far too risky.
If you know anyone who had a child born premature or cancer in the family, they likely saw hundreds of thousands of dollars in medical bills come their way, if not millions. Going without health insurance could mean you can’t get care or have to pay these big expenses out-of-pocket if something does go wrong.
Just as you’re the boss of your business of one, you’re the boss of your health insurance when you’re a solo business owner. Never risk your health and safety, or your family’s, by going without health insurance. Following these steps, you can find the right plan for your household. Then it’s time to get back to work on your business, so you have the money to pay for it.
Eric Rosenberg is a finance, travel, and technology writer in Ventura, California. He is a former bank manager and corporate finance and accounting professional who left his day job in 2016 to take his online side hustle full-time. You can connect with him at Personal Profitability or EricRosenberg.com.