The Ultimate Guide to Health Insurance for Independent Contractors and Small Business Owners

Many independent contractors and small business owners such as insurance agents, finance professionals, realtors, hair stylists, ranchers, or farmers may struggle with knowing how to purchase health insurance. 

When you do not get health insurance through an employer, it can be confusing to wade through all of the information online.

The goal of this guide is to give an overview of what your options are so you can make an educated decision.

If you have any additional questions, please feel free to reach out - I would be happy to be a resource for you.

Step Number 1: Understand Your Options

The first step in choosing a plan is knowing what options are available to you. The following options are the most common solutions.

The Affordable Care Act (ACA)

The most common type of individual plans are available through the Affordable Care Act marketplace. I have found that nearly 9 out of 10 people qualify for savings, so this option can be surprisingly affordable. 

ACA plans offer all of the minimum essential coverage that is mandated by the Affordable Care Act. This means, that these plans offer free preventative care, prescription coverage, maternity care, mental health support, and must cover all pre-existing conditions. 

The amount of savings that you may qualify for is determined by your income and household size. Many people do not realize that a family of 4 can earn well over $100,000 annually and still qualify for a tax credit. The income limits were increased due to COVID-19 and the American Rescue Plan Act, so even more people can qualify for savings.

ACA Alternatives

When someone doesn’t qualify for a subsidy, Affordable Care Act plans can be very expensive. ACA plans are premium plans because they will cover pre-existing conditions, mental health, maternity, and provides other benefits. If someone does not qualify for a subsidy, they generally start looking for other options. The most common alternatives are listed below.

Private Health Insurance

The most common ACA alternative is through a private health insurance provider. These plans are not mandated to follow the minimum essential coverage guidelines, so they are not eligible to receive tax credits, but because they may not cover maternity, mental health, or pre-existing conditions, etc. they are less expensive.

Many people save as much as 30-50% off a full-price ACA plan. These plans are typically health underwritten, meaning you will fill out a short questionnaire about your health that can be verified at any time. These plans typically work great for people who have high incomes and are healthy overall.

Health Shares

In my experience, (and I actually had two babies on a health share plan) these plans have no advantages over an ACA or a private plan.

It is important to understand the limitations of health share plans.

1) When using a health share ministry, you will pay for your medical bills upfront, and the health share will send you a reimbursement directly.  Some people have a really good experience with this, but there are horror stories from people who have waited a year, or two, or more! before the medical bill was reimbursed. In the meantime, the medical bill sat in collections and can have a negative impact on the patient’s credit score.

2) A healthshare is not legally obligated to pay your bills. People purchase health insurance for the assurance that they will not be responsible for large medical bills. Health shares are not legally obligated to pay your bills. A number of health shares have gone bankrupt or sued, so this is a concern to keep in mind. 

Step Number 2: Understand Your Health Insurance

When you are shopping for health insurance as an individual, it’s important to understand how your health insurance works so that you can make the best decision for yourself and your family.  

There are five terms that everyone should understand and know about their policy. If you do not know what your deductible or max out-of-pocket on your policy is, reach out and I can help you make sense of it.

What is a Premium?

Your monthly premium is what you will pay each month for your health insurance. 

What is a Deductible? 

Your deductible is what you will pay out of pocket before your health insurance will begin to cover any qualified expenses. Deductibles are usually an annual amount.

Many plans offer preventative benefits at no cost even before you have met your deductible.

What is Coinsurance?

After you meet your deductible, you still may be required to pay co-insurance. This is a small percentage of your medical bills that you’ll pay after paying your deductible. So for example, if you have a $1,000 deductible with an 80/20 co-insurance, you will pay your $1,000 deductible, then 20% of any of your medical bills up until you meet your max out-of-pocket. After you have met your max out-of-pocket, 100% of any qualified expenses will be covered.

What is a Copay?

Many health insurance plans will have a copay associated with certain services. This means that prior to meeting your deductible, you will only be responsible for the copay. In our example above, if you have a $10 copay for a primary care visit, then even before you hit your $1,000 deductible, you will still only need to pay the $10 copay when visiting a primary care physician.

What is a max out-of-pocket?

The maximum out-of-pocket is the most you will have to pay for medical services. This does not include your monthly premiums. Copays will not count towards your deductible but may go towards your max out-of-pocket. In our example, if you have a $1,000 deductible, you will be responsible to pay 20% of your bills until you hit the max out-of-pocket of, say, $2,500, then all qualified expenses are covered 100%.

Step Number 3: How to Enroll in Health Insurance

There are many ways to shop for health insurance. Here are the three most common:

Directly Through the Health Insurance Carrier

This is probably your least effective method. If you go this route, you will need to reach out to each carrier yourself to obtain quotes, ask benefit questions, check Rx formularies, make sure your doctor is in-network, etc.

Federal Marketplace/Other Enrollment Platforms

When the Affordable Care Act (ACA) was passed, they created a central location that allows consumers to see every plan offered by each insurance company. While this sounds nice, it can easily be information overload (even for licensed agents). 

The marketplace is not always clear, and has even been incorrect with details beyond deductibles, in-network doctors, or rx formularies.

Utilizing an Agent/Producer/Advisor

This is easily your most effective method of shopping the market. A local agent, like myself, can sift through all the available plans every year to determine which ones are advantageous or if certain plans were designed to meet a particular niche more than the rest. 

I spend a significant amount of time at the beginning of open enrollment just reviewing plans to see which plans will best fit the needs of my clients. I am also familiar with all the options - ACA plans, off-market plans, private plans, etc.

Working with a local advisor does not cost anything extra. Insurance companies cannot raise your rate for using an advisor, so you will pay the same price if you try to figure it out on your own or if you use an advisor. 

There’s a ton of value and no downside in having an agent help with finding the right plan for your family’s particular needs.

Conclusion

I hope this guide was helpful! If you have any other additional questions about health insurance, please feel free to reach out.