The “free” in "freelancing" says it all. You have the right to set your own schedule, and you can work at what you enjoy. But there’s a downside: You don’t have an employer who’s willing to throw some health care coverage benefits your way, like a health insurance plan that they sponsor.
Freelancers are required by the Affordable Care Act (ACA) to maintain “minimal essential coverage” just as employees are, even though there’s no tax penalty for not doing so in 2021. You might experience a bit of a jolt when you see the health insurance premiums, however, when you try to replace that health insurance from your old job. But you have more health insurance options than you might think, and not all of them will break the bank.
The Health Insurance Marketplace
Your best source is probably the Health Insurance Marketplace, providing affordable health insurance under the terms of the ACA. It offers numerous individual plans and plans for families, and it covers self-employed persons, provided that they don’t have any employees.
Marketplace insurers must cover you even if you have a pre-existing condition that you were receiving care for while you worked for someone else and were covered on an employer-sponsored plan. You can select how much you want to come out of pocket for medical care by choosing a “metal level.” For example, you’ll pay 40 percent if you select a bronze plan, but only 10 percent if you choose platinum. Of course, platinum plan premiums cost a lot more but deductibles are low, meaning your plan starts paying its share earlier than for other categories of plans.
One catch with this option is that you have to provide your estimated freelancing income for the year for which you're seeking health insurance coverage. You can’t just plug in what you earned last year because your annual income might not be the same from year to year. And there’s an annual open enrollment period, outside of which you can’t sign up for a policy unless you qualify for an exception.
The SHOP Marketplace
The SHOP Marketplace is an option if you freelance, but you have one or more employees who help you out so you won’t qualify for an individual or family plan in the Marketplace. SHOP stands for the Small Business Health Options Program. Your employee can’t be a relative, spouse or a contributing owner of your freelance business. A SHOP plan will cover both you, your family and your employee or employees. These are group plans, so you won’t qualify if you don’t have at least one employee, according to HealthCare.gov.
Purchasing a plan directly through an insurance company is probably the most expensive choice, but it could also be your easiest option if you’ve recently left your employer to go out on your own as a freelancer. Most insurers that provide group plans for businesses and their employees will let you “spin off” or convert your coverage into your own plan if you leave your job for any reason. You might also look into whether you’re eligible for COBRA, which would allow you to stay on your employer’s plan on a short-term provision until you can figure out your best insurance option or reach the Marketplace's open enrollment period.
Read More: About COBRA as Self-Employed Health Insurance
Your Spouse or Partner’s Health Plan
You have yet another option if you’re married or in a domestic partnership. You might be eligible for coverage on your spouse or domestic partner’s employer-sponsored health insurance plan. Your partner or spouse will have to coordinate adding you to the plan with their employer, and the contributions of both will likely increase. Employers and employees typically share these premiums.
How Much Does Health Insurance Cost?
Marketplace plans are by far the most cost-friendly because the ACA provides for subsidies in the form of premium tax credits as well as other savings.
There are income requirements for qualifying for these breaks, however. Your income must be at least 100 percent of the federal poverty level, but not more than 400 percent. This means that you earn no more from freelancing than $51,040 in 2021 if you’re single, increasing incrementally to $122,720 if you have a family of five. Your household size also factors in. You can’t qualify for Medicaid.
The IRS will send your premium tax credit directly to your insurer. The credit will be deducted from your monthly premiums so you’ll owe less. You don’t have to select this option, however. You can take the tax credit personally and pay the premiums yourself. Be warned that you may have to pay some of that premium tax credit back if your estimation of your freelance income for Marketplace purposes turned out to be off and you earned more than you anticipated.
The Marketplace can also tell you whether you qualify for either the Medicaid or the Children's Health Insurance Program (CHIP) program in your state. Choosing these insurance options will save you even more, but again, there are income limits.
Read More: What Is the Premium Tax Credit?
The Self-Employed Health Insurance Tax Deduction
Don’t despair if you find yourself left out in the cold because you don’t meet one circumstance or another so you’re going to have to pay a hefty portion – if not the entirety – of your policy premiums and healthcare costs yourself. The IRS throws a gift to freelancers in this regard.
The premiums have been 100-percent tax deductible since 2003 simply because you're self-employed. Just tell the IRS how much you spent by entering the number on line 16 of IRS Schedule 1, which you must then submit with your tax return. There’s a catch here, too, however. You must have realized some profit from your freelancing business over the course of the year to qualify. You can’t report a loss because you spent more on getting your freelance business up off the ground and on business expenses than you earned.
Compare this to the tax deduction that employed taxpayers get. They can only deduct premiums and other medical expenses that exceed 7.5 percent of their adjusted gross incomes, and they must itemize in order to do so. This means that they must forego claiming the standard deduction, which often works out to more tax savings overall.
Some Other Options
Look into health insurance provided by any professional, business or union associations you may have joined as a freelancer if none of the other options works for you. These organizations often offer group health insurance plans for their members, although some just offer assistance in helping you find a plan. For example, the Freelancers Union will help you get the best possible deal on a Marketplace plan.
You’ll have to bear your own costs and pay your own premiums, but group plans are typically less pricey than going it solo with an individual or family plan. These plans are very similar to employer-sponsored plans.
And you can gain a tax advantage if your freelance business is absolutely booming, so you’re not particularly worried about how much those premiums and deductibles are costing you each month. Consider setting up a health savings account, sometimes referred to as an HSA, to pay for your medical expenses. You don’t have to pay taxes on the money you contribute to the account or on its growth as it’s invested, but you do have to use the money on qualified healthcare costs. You must have a high-deductible health insurance plan to qualify, and there are some limits as to how much you can save.
Read More: How to Check My Balance on My Health Savings Account
- HealthCare.gov: Health Coverage If You’re Self-Employed
- Healthinsurance.org: Self-Employed Health Insurance Deduction
- BlackDoctor.org: The Freelancer’s Guide to Health Insurance
- National Writers Union: Help With Health Insurance
- HealthCare.gov: Health Coverage for Self-Employed
- United Healthcare: Self-Employed Health Insurance
- HealthCare.gov: The ‘Metal’ Categories ¬– Bronze, Silver, Gold & Platinum
- U.S. Department of Labor: Continuation of Health Coverage (COBRA)
- Benefits.Gov: State Children's Health Insurance Program
Beverly Bird has been writing professionally for over 30 years. She is also a paralegal, specializing in areas of personal finance, bankruptcy and estate law. She writes as the tax expert for The Balance.