While contracted employees typically gain the benefits of health insurance (whether public or private), independent contractors in the US generally are left to fend for themselves in this regard. As such, navigating the world of health insurance can be daunting, and understanding your options as a contractor is crucial to ensure you have the coverage you need without breaking the bank. Likewise, knowing what you can and cannot do as an employer considering hiring independent contractors can also be essential to avoid compliance errors.
In this guide, we’ll explore the rules surrounding health insurance for independent contractors, review some top insurance providers, discuss costs, and offer advice to help you make informed decisions.
What are the Rules Regarding Health Insurance for Independent Contractors?
An independent contractor is considered self-employed in the US, meaning you’re responsible for securing your own health insurance. A company providing or even offering benefits like health insurance to contractors is at risk of misclassification, which risks penalties, fines, and even possible criminal charges. This includes situations where international companies may be choosing to work with contractors in the US and aren’t sure of the rules regarding their rights or obligations.
That’s why it’s important that all independent contractors know their rights and how to manage essential tax and social security procedures for themselves.
Moreover, the Affordable Care Act (ACA) mandates that all individuals have some form of health insurance or face potential penalties. However, as a self-employed individual, you have the flexibility to choose a plan that best fits your needs and budget. This means that you can look at all the options available on the market, either using private insurers or professional associations.
Health Insurance Options for Self-Employed Workers in the US
When it comes time to select the right health insurance plan, you’ll need to consider factors like coverage, premiums, plan type, deductibles, area, and network availability.
Here are some top providers nationally to consider:
Best Overall Health Insurance: Blue Cross Blue Shield
Blue Cross Blue Shield (BCBS) is a health insurance group made up of 33 independent providers. Renowned for its extensive network and comprehensive coverage options, it has a presence in all 50 states and offers a variety of plans tailored to different needs and budgets.
Their plans are known for flexibility and a wide range of in-network providers, making it easier to find healthcare services wherever you are. However, some users have reported issues with regularly changing premiums and service options, making it harder to plan for the future.
Lowest Copays: Oscar
Oscar Health stands out among the crowd for its comparatively user-friendly approach and low copays. Oscar offers a strong digital experience that integrates well with users’ technological needs, including a mobile app that allows you to track your health history, consult with doctors virtually, and manage prescriptions.
Their plans often feature competitive premiums and lower out-of-pocket costs, making healthcare more accessible, if a bit more basic than other options. While some users complain about having access to mostly generic services, elevated options are available (for a fee).
Best Bronze and Silver Pricing: Kaiser Permanente
Kaiser Permanente is a top choice for those seeking affordable Bronze and Silver plans (lower premiums with higher percentages of healthcare costs paid by the user). As an integrated health system, Kaiser provides insurance coverage and healthcare services, ensuring corresponding user services and efficient care.
Most importantly for many users, their plans are competitively priced for infrequent usage, though members still benefit from access to a wide range of services within the Kaiser network.
Evaluation and Methodology – How to Choose the Best Health Insurance Company for You
Choosing the right health insurance plan involves careful evaluation of various factors, such as:
- Coverage Options – The range of plans and essential benefits offered to meet diverse needs and whether plan types or service options are customizable to your needs.
- Network Size – Access to a broad network of healthcare providers is essential, as healthcare emergencies require difficult decisions quickly. Being out of network can cause delays or bring issues that come back to haunt users later on.
- Cost – Competitive premiums and varying proportions of out-of-pocket expenses differ greatly between providers, and users must balance the costs to the benefits they want.
- Customer Satisfaction – Positive reviews and ratings from policyholders are key to getting an idea of service quality. While some providers may look good on paper, customer reviews allow you to see if a provider frequently changes their options or has a high rate of denials.
- Additional Benefits – Value-added services like telemedicine, wellness programs, and preventive care may not feature in a provider’s main advertisements, but they can offer holistic benefits that may tip the balance in some cases.
The Cost of Health Insurance for Self-Employed People
Health insurance premiums for self-employed individuals can vary widely based on factors like age, location, and plan type. Furthermore, it’s essential to think in terms of total costs, meaning planning not only for premiums but also out-of-pocket costs that are generally unforeseeable but must be considered.
On average, individual coverage premiums are around $484 per month, while family plans average $1,230 per month. Deductibles also play a significant role in overall costs, with individual deductibles (including out-of-pocket spending) averaging $4,394 annually, though, with the sheer variety of plans and providers available, no average may be truly representative for any one user.
The US government provides a calculator and tips for proper costing through the healthcare.gov website here.
Where to Get Health Insurance for the Self-Employed
Self-employed individuals have several avenues through which to obtain health insurance, with the most common being:
- Health Insurance Marketplace – Federal or state marketplace plans offer ACA-compliant plans with potential subsidies based on income, with healthcare.gov being the first port of call in most cases. This is a good starting point if you want to compare different plans and determine eligibility for financial assistance.
- Private Insurance Companies – Many insurers offer individual plans outside the marketplace as they may fall outside of federal or state healthcare schemes. This option may provide more flexibility and variety but often without the benefit of subsidies.
- Professional Associations – Some industry groups offer specialized health insurance plans to their members, which can be a cost-effective option for those seeking specific plans or services. The benefit here may also be access to group plans that are only available to certain licensed professionals or similar.
How to Estimate Future Income for Insurance Applications
Estimating your annual income accurately is just as crucial as preparing for any kind of healthcare eventuality when applying for health insurance, especially if you’re seeking subsidies through the marketplace. To best prepare your finances, consider the following steps:
- Review Past Income – Look at your earnings from previous years as a baseline
- Project Future Earnings – Account for any expected changes in your business that could affect income (this is especially key for new or part-time contractors who may still be figuring out their business potential)
- Include All Income Sources – Ensure you consider all income streams, not just freelance work, but also investments and any other side gigs
- Adjust for Uncertainty – If your income is variable, be sure to give yourself a reasonable range of estimates and be prepared to make changes throughout the year
The best income estimation helps determine your eligibility for subsidies and ensures you receive the appropriate level of financial assistance, but always be ready to make changes, as a lot will always remain unforeseeable.
Other Health Insurance Options
Beyond traditional health insurance plans, why not consider these alternatives?
- Health Savings Accounts (HSAs) – Paired with high-deductible health plans, HSAs are savings accounts offered by banks or other financial institutions that allow you to save pre-tax dollars for medical expenses but that may only be used in certain (often preventative) circumstances.
- Short-Term Health Insurance – Provides temporary coverage for limited care options such as preventative or emergency treatment during periods of transition but generally doesn’t cover pre-existing conditions.
Each has its pros and cons, with alternative options like these and others requiring extra thought in terms of restrictions and exclusivity, so evaluate them carefully to determine if they align with your healthcare needs and current situation.
Advice for Employers – Avoiding Misclassification Risks in the US by Managing Payroll and Benefits Like Health Insurance Through an EOR
Unfortunately, many companies entering the US market make the mistake of hiring workers as independent contractors to avoid the hassles and costs that come with local employment. For businesses engaging independent contractors, it’s crucial to manage relationships properly and carefully to avoid misclassification risks, as misclassifying employees as independent contractors can lead to legal and financial penalties.
However, employers don’t have to take this risk to save time or money while still being able to provide their workers with attractive benefits like health insurance. Instead, partnering with an Employer of Record (EOR), which manages payroll, benefits, and compliance, ensures that workers are classified correctly and receive appropriate and competitive benefits, including health insurance. This approach mitigates risks and streamlines workforce management.
INS Global offers expert EOR and other payroll outsourcing options in all 50 states as well as 160+ countries worldwide. To find out more about how these solutions can benefit your expansion strategy, talk to our experienced advisors today.
FAQs for Self-Employed Health Insurance
What Does “Self-Employed” Mean for Health Insurance?
Being self-employed means you operate your own business and have no employees. This includes freelancers, independent contractors, and sole proprietors. As a self-employed individual, you’re responsible for obtaining and managing your own health insurance coverage.
Is Health Insurance Tax-Deductible for Self-Employed People?
Yes, self-employed individuals can deduct health insurance premiums for themselves, their spouses, and dependents when calculating adjusted gross income on their tax returns. However, this deduction applies only to months when you were not eligible for employer-sponsored health coverage.
What Is a Premium Tax Credit?
Premium Tax Credits are refundable credits that help eligible individuals and families with low or moderate income afford health insurance purchased through the Health Insurance Marketplace. Eligibility and the amount of credit available are based on your income and household size.
Are There State-Specific Options?
Yes, health insurance options and regulations can vary by state. Some states operate their own health insurance marketplaces, and available plans may differ. It’s important to review your state’s specific offerings and regulations when selecting a plan.
What are Platinum, Gold, Silver, and Bronze Health Insurance Plan types?
Health insurance plans in the U.S. are categorized into Platinum, Gold, Silver, and Bronze tiers based on how costs are shared between the insurer and the policyholder.
These tiers do not indicate the quality of care but rather how expenses like premiums, deductibles, and out-of-pocket costs are structured, i.e., healthcare costs in platinum plans are paid 90% by the provider and 10% by the user, while in a bronze plan, 60% is paid by the provider and 40% by the user.
Users are typically able to choose which type of plan they want. This may mean opting for a gold or platinum plan for users more concerned about receiving regular healthcare treatments for a higher monthly premium, while those choosing silver or bronze plans may be looking for lower monthly costs and relying on infrequent or minor healthcare needs.
Limits or restrictions on a user’s age may apply in some cases, so it’s best to check all of the plans offered by multiple providers before making a choice.
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