Self-Employed Health Insurance in the Age of the Affordable Care Act

July 26, 2013


What do you do about health insurance if you want to work for yourself in the US? We’re going to cover off the various options available to you so you can make the best decision for yourself.

Losing your employer-sponsored health insurance can be a big concern for people looking to make the leap to self-employment. The average cost of buying an individual health insurance plan can easily cost you up to four times as much as what you contributed towards your employer plan.

The Affordable Care Act (ACA), the Obama administration’s sweeping health care reform legislation, takes aim at this price problem through regulations and tax credits. The problem, however, is that the ACA’s major provisions don’t kick in until 2014. So, in the meantime, what can you do for self-employed health insurance that won’t break the bank?

Here we’ll explore some of your options as well as do a deep dive into how you’ll fare when the ACA takes effect.

Your State’s Health Insurance Marketplace

Starting in October, 2013 you’ll be able to enroll in a health insurance plan through your state’s local health insurance marketplace as part of the Affordable Care Act. Here’s a good way to think about the marketplaces: they’re sort of like the Amazon.com of health insurance. You can browse the different plans that are out there and see how they measure up against one another.

Plans at the marketplaces will come in four different levels: Bronze, Silver, Gold, and Platinum. Each level has its own cost-sharing-to-monthly-premium ratio. For example, the Bronze plan will have the cheapest premiums, but the highest deductibles, whereas the Platinum will cost the most each month, but will have the lowest deductibles.

What makes marketplace plans a deal is that depending on your income level you’ll get a tax credit to help you pay for insurance. If you make between 100 percent and 400 percent of the federal poverty line (FPL) then the maximum amount you will pay for health insurance is only 9.5 percent of your annual income. The cool thing is that 9.5 percent is a sliding number, so the less money you make, the lower that percentage will actually be.

The Kaiser Family Foundation has a great tax credit calculator here, and we at Vista Health Solutions have one here.

Not to mention that on top of all of this, each insurance plan sold at the state exchange will come with coverage for medical services in the ACA’s 10 “essential benefits” categories (which cover the whole spectrum of typical medical services).

Enrolment in the state marketplaces starts on October 1, 2013 for coverage beginning on Jan. 1, 2014.

Spouse’s Health Insurance

The state health insurance marketplace might seem like a good idea, but the downside is that they don’t open until October and then coverage doesn’t even start until January. Plus there’s been some speculation that even with tax credits, insurance plans at the marketplaces will be very expensive.

A great option for the married self-employed person is to be added to their spouse’s employer-sponsored health insurance. This process is probably very simple and can be done through their company’s human resources department.

The addition of another person onto their health insurance plan will likely increase their monthly contribution, but it will be cheaper than purchasing an individual insurance policy on the open market.

COBRA

COBRA is a program that allows you to stay on your employer’s health insurance plan for up to 18 months after losing your job. Sounds pretty good, right? The catch is that you have to take over responsibility for the full payment of the insurance premium, which understandably could be substantial.

The philosophy behind COBRA is that losing your job does not have to mean losing your health insurance. In the days before the Affordable Care Act this was a great solution for those with a pre-existing condition. Before the Affordable Care Act came along, you were pretty much uninsurable if that was the case.

With the end of pre-existing conditions under the ACA, COBRA has sort of been rendered obsolete. The program will continue to exist for the time being and is still a viable option before the full prohibition of pre-existing conditions kicks in next year.

Medicaid 

Medicaid is a great option for those self-employed people who qualify. If you’re not familiar with Medicaid, it is a government sponsored health insurance program designed for people who cannot afford to pay for health insurance.

Under the Affordable Care Act next year, the Medicaid program is being expanded. This means that the income eligibility will be raised, so those making up to 133 percent of the federal poverty line annually will be able to apply. Also, for the first time, single, childless adults will be eligible.

However, the expansion is not happening in every state. The Supreme Court’s ruling on the ACA made the expansion optional. So far, 24 states have announced plans to proceed with the expansion.

Insurance Through a Professional Group

Buying health insurance through professional groups like the Freelancer’s Union, bar and trade associations, or your local chamber of commerce is also a viable option if you’re self-employed.

A good place to start would be with your local chamber of commerce and then expand out from there. Even if they don’t offer their members a health insurance plan, they can probably point you in the right direction of a group that does.

Health Insurance Broker 

If you just want a regular old individual insurance plan from a private insurer there are plenty of options for that. But you might consider buying it through your local health insurance broker. Of course, most of the big brokers now operate exclusively online, but it’s likely there’s still a broker somewhere in your neighborhood.

The advantage of working with a broker is that you can get simple, direct answers about the typically confusing world of health insurance in a face-to-face situation. These people eat, live, and breathe health insurance, so they know which plans to recommend.

As I’ve mentioned in the introduction, the world of health insurance is rapidly changing, especially as we get closer and closer to 2014 when the major provisions of the ACA will take effect. But the good thing is that in the long run, many of these reforms will help the self-employed purchase health insurance.

But if you can’t wait until January to finally start that home business you’ve been dreaming of, then there are still lots of health insurance options out there for you in the meantime.

Michael Cahill is the Editor of the Vista Health Solutions blog. He writes about the health care system, health insurance industry and the Affordable Care Act. For more information about how the ACA may affect small business owners, visit the Vista Health Solutions self employed health insurance guide. Follow him on Twitter at @VistaHealth


about the author

This is a guest post for the FreshBooks blog. FreshBooks is the #1 accounting software in the cloud designed to make billing painless for small businesses and their teams. Today, over 10 million small businesses use FreshBooks to effortlessly send professional looking invoices, organize expenses and track their billable time.