Health Insurance for Independent Contractors: Things To Know

FT Contributor  | 

Health insurance is often one of the most important factors for people deliberating employment options. Getting quality, affordable healthcare coverage from an employer can make a big difference in your monthly budget. But for freelancers and independent contractors, it’s often not so simple. These types of employment typically don’t come with any benefits from an employer, including health insurance.

If you’re thinking about making the leap from traditional employment to freelancing, you may be wondering exactly how healthcare coverage will work. So what exactly are the health insurance options for independent contractors?

What Is an Independent Contractor?

An independent contractor is defined as someone whose employer has no control over when and how they do their work, only over the final product. Independent contractors can include common professions such as doctors, dentists, and lawyers who work for themselves, as well as freelancers, members of the gig economy, and other types of contractors.

By definition, independent contractors are self-employed, and are in charge of securing their own clients and paying their own taxes. You’re not considered an independent contractor if you do work that is under the control of your employer.

If you’re not sure whether you qualify as an independent contractor, consider your relationship with your employer, and whether you have full control over your own work. If you think you’re being mistakenly classified as an independent contractor so that your employer can reduce their tax burden, they may be held liable to pay a portion of your employment taxes.

1099 Contractors

1099 contractors are independent contractors and not considered employees. They may complete work for a single company or for several different companies or clients. At the end of the year, 1099 contractors receive a 1099 Form from their employers or clients, and are required to pay their own income, Medicare, Social Security, and self-employment taxes. These taxes can add up over the course of a year, so it’s important that you’re properly classified in order for your tax burden to be fair and accurate.

How to Get Health Insurance When Self-Employed?

If you’re self-employed and looking for health insurance, there are a variety of different options you can pursue.

The Health Insurance Marketplace

The Health Insurance Marketplace was established as a part of the Affordable Care Act (sometimes also called Obamacare). Families, individuals, and small businesses can use the marketplace to shop for and enroll in a variety of health insurance plans. In many cases, they may also be eligible for tax credits that help to offset the cost of insurance depending on their income.

Freelancers, independent contractors, consultants, and other self-employed workers are eligible to enroll in the marketplace. There are several kinds of coverage available, from low-premium, emergency-only plans to high-premium, low-deductible plans that are a better option if you have greater healthcare needs. Some plans also offer additional perks, such as gym memberships.

Short-Term Health Insurance

Short-term health insurance is another temporary option for independent contractors and freelancers. You’re eligible for short-term health insurance if you’ve missed the enrollment window for the Health Insurance Marketplace, are waiting for coverage, looking for coverage until you’re able to receive Medicare, turning 26 and coming off your parents’ insurance, or between jobs.

Short-term health insurance is designed to fill gaps in health insurance coverage until you find a long-term solution through an employer, the Marketplace, or other government-sponsored options such as Medicare or Medicaid.

Short-term health insurance does come with some downsides, however. Most short-term health insurance plans only last for a minimal period of time, typically somewhere from two to 12 months. Unlike plans issued through the Affordable Care Act, access to short-term health insurance is not guaranteed, and you can be denied access for preexisting health conditions.

Associations

Some associations offer health insurance for independent contractors in the same profession. These work similarly to employer-sponsored health insurance in that they pool health insurance among a larger group of individuals, which often results in lower costs.

PEOs

PEOs, or Professional Employer Organizations, allow small businesses and the self-employed to access healthcare plans and options. PEOs deal with the entire administrative side of health insurance, and can often offer competitive plan options.

How Much Does Health Insurance Cost If You Are Self-Employed?

Health insurance is often one of the biggest expenses in a freelancer’s budget, even compared with other necessary costs such as rent, food, and utilities. Healthcare costs may vary widely depending on what area of the country you live in and what your specific healthcare needs are. Costs also vary from plan to plan.

In general, freelancers have an option to choose between high-deductible, low-premium plans and low-deductible, high-premium plans. Low-premium plans may be a better choice if you have few healthcare needs, and plan on only visiting a doctor once or twice a year. High-premium plans may be a better option if you know you have healthcare needs that require the use of specialists, expensive medications, or frequent doctors visits.

Health insurance is just one of many financial burdens that freelancers and independent contractors must shoulder if they decide to work for themselves. Although the Affordable Care Act expanded coverage options for Americans, many freelancers still find the cost of health insurance to be a big obstacle.

Other types of health insurance, such as single-payer government-run health insurance, have recently begun gaining favor, especially during the 2020 Democratic primary. This form of universal healthcare, sometimes dubbed “Medicare for All,” would expand coverage to all Americans by taking the place of private insurance.


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