Health insurance can be a critical piece of your financial plan and it can be vital to your physical and mental wellbeing. But when you're self-employed, finding the right plan for your needs can be a full-time job.
"The number of people who are self-employed has risen rapidly in recent years,1 and most full-time self-employed workers don't have direct access to health insurance themselves or through their spouse.2 When you have to secure health insurance without an employer's help, it can be challenging, even overwhelming, to understand the many publicly available options and whether you could qualify for government subsidies," says Angela Walker, vice president, Independent Worker Products at Fidelity.
But finding health insurance may not be as complicated or as expensive as you fear. Here are tips on finding the plan that works for you and how to save on health care expenses.
1. What are the pros and cons of different types of health plans?
The typical dilemma when choosing an insurance plan is deciding which type will be best and most cost-efficient for you: a PPO, an HMO, an HDHP, an EPO, or POS.
PPO stands for preferred provider organization. If you choose a PPO you won't need to choose a primary care physician or get referrals to see specialists.
- Pros: You'll often pay less if you go to doctors that are within the network but you can go to out-of-network doctors as well. In some cases you may need to pay out of pocket to see an out-of-network doctor and then file a claim to get reimbursed by your insurance plan.
- Cons: Out-of-network doctors may be covered at a lower level than in-network doctors. Flexibility may come with a cost: The premium for PPOs may be a little higher than for HMOs.
HMO stands for health maintenance organization. Signing up for an HMO typically requires you to choose a primary care physician and go through them to get referrals to specialists.
- Pros: HMO premiums may be higher than they would be for a PPO but your copays and other costs may be lower.
- Cons: For most HMOs, you must use service providers in the network in order to be covered—except in an emergency. You'll also need a referral from a primary care provider to see other health care providers or specialists.
HDHP stands for high-deductible health plan. The premiums for these plans are lower than traditional plans like PPOs.
- Pros: Being enrolled in an HDHP may make you eligible to contribute to a health savings account (HSA).
If you're eligible to contribute to an HSA, it can make sense to take advantage of the opportunity because an HSA is one of the most tax-efficient savings options available. An HSA offers triple tax savings,3 where you can contribute pre-tax dollars, pay no taxes on earnings, and withdraw the money tax-free now or in retirement when used to pay for qualified medical expenses.
- Cons: As the name suggests, HDHPs come with a high deductible. That means you may need to pay relatively more money out of pocket before your insurance kicks in to cover medical costs for the year. To help mitigate the cost, it can be a good idea to save enough in your HSA to cover your deductible and other expenses you expect to incur each year.
EPO stands for exclusive provider organization.
- Pros: Unlike an HMO, you won't need a referral to see a specialist.
- Cons: This type of plan only covers you if you use the doctors or hospitals in the network (other than for emergencies).
POS stands for point of service.
- Pros: If you choose this type of plan, you will pay less to use the doctors or hospitals in the network.
- Cons: You also may be required to have a primary care physician and get referrals before visiting a specialist.
2. How can I pick the right plan for my needs?
There are several considerations when it comes to picking health insurance that will work for your situation.
- How much health care have you used in the past and how much do you expect to use in the future?
- Is keeping the doctor you use now a priority?
- Would you rather pay a higher premium or put money into an HSA and pay a lower premium? Paying a higher premium typically lowers the deductible and other out-of-pocket costs though it typically increases the costs you're responsible for. If you're comfortable saving enough to cover your deductible and other out-of-pocket costs in an HSA, you could potentially save money on your premiums. Any savings in an HSA that you don't use for current health care expenses can be saved for future costs—even those in retirement.
- Is reducing taxable income a priority for you this year?
- How would you pay for a medical need that wasn't covered by health insurance?
- Coinsurance and copays are another cost of health insurance to consider when shopping for a plan. You'll have to pay them even after you've reached the deductible.
You can never predict how your health care needs may change in the future, but analyzing your current and past use can give you a clue about how things could continue. Consider all of your health care providers and evaluate the networks and the number of local doctors and find out how any prescription medications you're currently using would be covered.
3. When and where can I sign up for health insurance?
Knowing when to sign up for a health plan is almost as important as knowing where to find them. Open enrollment is the time of year when people may review, select, or modify their health plans. Open enrollment in the Public Marketplace starts on November 1 continuing through December 15 each year for coverage beginning on January 1. There's also an extension period until January 15 to secure coverage that will start on February 1.
If you miss that window, you may have another opportunity known as special enrollment. To qualify for a special enrollment period requires certain life events such as losing health coverage, moving, getting married, having a baby, or adopting a child, or if your household income is below a certain amount.
There are several ways to find a health plan that fits your needs:
- Affordable Care Act (ACA)-Health Insurance Marketplace or state exchanges
Plans that are available through the Marketplace or on state exchanges are typically required to have certain features in order to be compliant with the Affordable Care Act (ACA)—for instance they can't limit coverage or charge more due to pre-existing conditions. They also must cover 10 essential health benefits including maternity care, prescriptions, emergency services, hospitalizations, lab services, and mental health and substance use disorder services.
To get started, go to Healthcare.gov and enter your ZIP code to be directed to plans available in your area or to your state exchange.
- Private insurance sold through brokers or directly from insurance companies
You can also buy health insurance plans directly from insurance companies —these are sometimes called off-exchange plans. The types of plans you may find may or may not be compliant with ACA standards. For example, short-term plans may offer some basic coverage for relatively lower monthly premiums. If you're considering options that are not compliant with the ACA, it's critical to understand what you're paying for and the expenses you may face when visiting the doctor, going to the hospital, and getting prescriptions.
- Marketplaces like Stride
Stride is a partner of HealthCare.gov. Shopping through a marketplace aggregator like Stride allows you to see the same plans as those on HealthCare.gov and on your state's marketplace, in addition to some private health plans—all in one place.
One of the main benefits of an aggregator like Stride is that it offers a more personalized experience that makes it easy to navigate the health plan marketplace and find the the most affordable, highly rated health plans in your area. It can also be quick—most people can find a plan in 10 minutes or less.
Medicare is a federal health insurance program for:
- People age 65 and older
- Certain younger people with disabilities
- People with End-Stage Renal Disease (ESRD), which is permanent kidney failure that requires dialysis or a kidney transplant
- People with Amyotrophic Lateral Sclerosis (ALS)
Medicare gives you a 7-month time frame to sign up/enroll. This is the Initial Enrollment Period (IEP). For those who are eligible when they turn 65, that 7 months begins 3 months before the month you turn 65 and ends 3 months after the month you turn 65. For those who are born on the first of the month, this window shifts one month earlier. For example, if you were born on September 1, your IEP would begin in May, August would take the place of your 65th birthday month, and the enrollment period would conclude at the end of November.
It’s important to enroll in Medicare during your IEP. If you delay enrolling past your IEP, you could end up having a lifetime late enrollment penalty tacked onto your Medicare premiums later on. People who delay retirement past 65 and have health insurance coverage through their employer may be able to delay Medicare enrollment without penalty. However, if you’re self-employed, it’s unlikely that the coverage you have will allow you to delay enrolling in Medicare without penalty.
Signing up for Medicare can be complicated. The coverage is broken into parts and each part comes with a lot of options. If you are nearing your 65th birthday it can make sense to research the options or speak with a professional who can help untangle everything.
Read Viewpoints on Fidelity.com: 6 key Medicare questions
If you're 65 or older, Fidelity Medicare Services® offers complimentary guidance to help you find coverage that's right for you.
4. How much does health insurance cost?
There are 4 basic choices in terms of cost to you and the costs covered by insurance on the public health exchanges.
- Platinum plans cover, on average, the highest amount of eligible health care costs—about 90%. These plans come with the highest premiums.
- Gold plans cover on average 80% of eligible health care costs.
- Silver plans cover about 70% of eligible health care costs.
- Bronze plans cover about 60% of eligible health care costs. Premiums for these plans cost the least of the 4 metal tiers.
"There is an affordability perception gap among many worker populations without traditional benefits. They think that health care is too expensive, however many end up paying close to nothing for their premiums," said Noah Lang, CEO and co-founder of Stride Health. "We’re working hard every day to close this gap to ensure people are getting the coverage they need at a price they can afford."
5. Are there any ways to save money on health insurance?
- HDHP with HSA
It bears repeating that a high-deductible health plan with an HSA may offer some extra bang for your health care bucks. This option gives you the opportunity to save money on a pre-tax basis for current and future health needs. Investing for growth potential gives your money the chance to grow tax-free, and withdrawals are tax-free when used for qualified medical expenses.
The HSA contribution limits for 2023 are $3,850 for self-only coverage and $7,750 for family coverage. Those 55 and older can contribute an additional $1,000 as a catch-up contribution.
For 2024, the limits are $4,150 for self-only coverage and $8,300 for family coverage with an additional $1,000 allowed as a catch-up contribution for those age 55 or older.
There's no "use it or lose it" clause with an HSA. If you don't end up using the money in your HSA in a given year, it can grow in the account until you do need it. Or you can save the money for retirement: After age 65, an HSA can be used like an IRA. Withdrawals for nonmedical expenses would be taxed as ordinary income with no penalties.
An added bonus for the self-employed set: You save 15.3% on SECA taxes (Social Security plus Medicare withholding) for contributions to an HSA since you are contributing as both the employer and the employee.
- Self-employment health insurance tax deduction
Premiums for medical, dental, and some long-term care insurance may be deductible. They are an "above the line" deduction so they are considered adjustments to income.
Be aware that:
- Deductibility of premiums is determined on a month-by-month basis.
- You can only deduct premiums for months you were not eligible for employer-sponsored health plans. If your spouse and dependents are included in coverage then their access to employer health plans is considered as well.
- You must have a net profit for the year in which you plan to deduct health insurance premiums.
- The amount of the adjustment cannot be more than income earned through self-employment. It's a good idea to speak with your tax professional to help make sure all the rules are followed.
- Premium tax credits
There are some tax breaks available to help make health care insurance more affordable—if you qualify based on your household income. You may qualify for a premium tax credit on ACA-compliant plans if your income falls between 100% and 400% of the federal poverty line.
If you qualify for the tax credit, you can use some or all of it to reduce the cost of your premium at the time of payment. Any part of the tax credit not used to reduce your insurance premiums can be taken as a refund.
- Cost-sharing reductions
If your income falls within a certain threshold, you may qualify for cost-sharing reduction which reduces the amount you may pay for deductibles, coinsurance, and copays. Cost-sharing reductions are only available on silver level plans through ACA-Marketplaces and exchanges.
Financial planning can help self-employed workers find insurance
If your income puts you just out of the bounds of tax credits or cost-sharing reductions, you may be able to take advantage of ways to reduce your taxable income to help you qualify for them. Contributions to tax-advantaged retirement accounts designed for small businesses and self-employed workers may help you reach more affordable insurance premiums.
For help picking the right plan for you, try our 5-minute quiz: Small-Business Plan Selector