Health Insurance Options for the Self

Health care reform means solo entrepreneurs no longer need to worry about coverage.

Self-employed workers who have no employees can buy health insurance on the individual marketplace.

Health insurance options for solo entrepreneurs have broadened since passage of the Affordable Care Act, providing self-employed individuals with the freedom to focus on their professional passions rather than worry about coverage.

Last year, a report from the Urban Institute and Georgetown University's Center on Health Insurance Reforms estimated that 1.5 million more Americans would be self-employed in 2014 because of health care reform.

It's too early to know if the prediction will bear out, says Linda Blumberg, a senior fellow at the Health Policy Center at the Urban Institute in the District of Columbia. But one thing is clear: 'The law is a huge facilitator in helping people make the decision to become self-employed or to stay self-employed,' she says.

ACA reforms ranging from guaranteed coverage to financial assistance for people with low and moderate incomes have become potential game changers for the self-employed.

'The ability to buy insurance in the individual marketplace and qualify for tax credits has really opened up more opportunities for people to be self-employed and entrepreneurs,' says Christine Barber, senior policy analyst at Community Catalyst, a health care advocacy organization.

If you're self-employed with no employees, you can buy health insurance in the individual marketplace because you're not considered an 'employer,' even if you hire independent contractors. 'The law has made the [individual] insurance market much more stable, price competitive and transparent,' Blumberg says.

Here's a look at the health insurance landscape for those who are self-employed.

End of 'Job Lock'

Insurers can no longer deny coverage based on an individual's pre-existing medical condition, putting an end to the 'job lock' that kept people tied to their workplace because they needed the employer-sponsored health insurance. Insurance plans must also provide a package of essential health benefits that include no-cost preventive measures, and they're required to cover at least 60 percent of all health care costs.

'We know that increased access to quality, affordable health care will make it easier for potential entrepreneurs to go out on their own,' says Meredith Olafson, senior policy advisor for the U.S. Small Business Administration. She adds that the law 'levels the playing field' for entrepreneurs by offering 'real financial security.'

Discounted Insurance

Depending on family size and income, self-employed individuals may be eligible for financial assistance if they buy coverage at the federal government's HealthCare.gov or the state-run online marketplaces.

For example, individuals earning up to $46,680 and a family of four with a household income of $95,400 qualify for premium tax credits. Individuals earning up to $29,175 and a family of four with a household income of $59,625 also may qualify for subsidies to help with out-of-pocket costs.

'Getting financial assistance can make a big difference in people's lives, especially if they're not earning a lot of money because they're just starting out,' Blumberg says. Others discover it's no longer necessary to keep a part- or full-time job to pay for or access health insurance because they now have more affordable options. 'That means they can devote more of their time to the kind of work they want to do,' she says.

Income Verification

To qualify for discounts, entrepreneurs must provide an estimate of annual net income.

'This can be challenging because it can be really hard to project what you're going to make from year to year when you're self employed,' says Sabrina Corlette, senior research fellow at Georgetown University's Center on Health Insurance Reforms. She adds that 'discrepancies' between projected 2015 income and 'how much income the federal government thinks you have' can also arise because eligibility for tax credits and subsidies are based on 2013 tax returns (the most recent available).

Colette advises self-employed entrepreneurs 'make a good faith estimate' of their projected earnings and work with a marketplace case worker to submit the necessary income documentation, like as a letter from your previous employer that you no longer work there. Report income changes promptly to avoid having to repay the government at tax time because you earned more than expected.

Although self-employed individuals can buy health insurance in the private market, the tax credits and subsidies are only available at the government-operated marketplaces.

'People should look at all their options,' Barber advises. 'Many self-employed individuals may be surprised to discover that they qualify for financial assistance.'