Do I Need Self-Employed Health Insurance?

What You Need to Know 

Although health coverage isn’t required at the federal level, some states require you to carry health insurance to avoid a penalty on your state taxes.

You could find affordable self-employed health insurance on the Health Insurance Exchange or through the Small Business Health Options Program. 

You may qualify for the Self-Employed Health Insurance Deduction, deducting up to 100% of your health insurance premiums. 

Starting your own business brings a lot of decisions, including whether and where to buy health insurance for yourself and your employees. If you’re the only employee, you may be able to get coverage through your spouse or domestic partner’s health plan. But if you’re single or aren’t covered under someone else’s plan, you’ll want to investigate individual coverage (since you won’t qualify for group coverage). If you do have employees, keep in mind that offering health coverage will help you attract potential candidates and retain the employees you do have. 

Why Should I Purchase Health Insurance?

Health insurance coverage is no longer required at the federal level, but you may still face a mandate depending on where you live.

California, Massachusetts, New Jersey, Rhode Island and Vermont currently impose a penalty on state taxes if you don’t carry health insurance. Residents of Washington, D.C., also are required to purchase health insurance. 

Even if your state doesn’t require it, keep in mind that health insurance provides you with important financial protection. If you (or an employee) become seriously ill or are injured, healthcare expenses — as well as lost productivity due to time away from work — could bankrupt you and, in turn, your business. 

What Will It Cost Me?

As a self-employed individual or small business owner, your health insurance costs will depend on many factors, such as where you live, your income level, the type of coverage you get and the size of your deductible. How often you use healthcare — and your comfort with risk — may determine how “rich” a plan you need, and in turn, the cost of that health insurance policy. And, if you’re offering coverage to any employees, your premiums may depend on how many people make up your small group.

The cost also depends on the insurance provider. For instance, plans purchased through the Health Insurance Marketplace likely will cost less than purchasing an individual policy directly through a private insurance company.  And every insurer offers its own products, and sets its own pricing.

What Are My Options for Self-Employed Health Insurance?

You have several options for self-employed health insurance. Make sure to compare the various types to find the best health insurance for your needs and budget. 

• Health Care Exchange: Individuals, families and small businesses can shop for affordable health insurance on the state or federal Health Insurance Marketplace that meets the coverage requirements of the Affordable Care Act (ACA), including pre-existing conditions and preventive care. You may qualify for premium tax credits to lower the monthly costs of these plans. 
• Small Business Health Options Program (SHOP): This program helps find employee insurance coverage for businesses with 1-50 full-time employees. If you have up to 25 employees, you also may qualify for the Small Business Health Care Tax Credit to help lower the cost. It’s not available to sole proprietors or self-employed individuals with no employees. 
• Individual coverage: You can purchase an individual health insurance plan directly from a private health insurance company. 
• Coverage through state plans: Some states offer health insurance plans to residents based on income, medical needs and other conditions. Check with your state to see if it offers a health insurance program, and if so, if you qualify.  
• Small business/small group health plans: For small businesses with less than 50 full-time employees, many private insurance companies offer a small-group plan at a lower cost than individual plans. 
• Coverage through spouse/domestic partner: If your spouse or domestic partner receives health insurance through an employer, you may be able to join that policy.
• Alternatives for individual coverage: If you are in between jobs or insurance plans, you may be able to purchase short-term health insurance that provides basic coverage for 30 to 90 days. If you had health insurance coverage but lost it because you left an employer to start your own business, you may be eligible to continue that coverage under COBRA for a certain amount of time. 

What Is the Self-Employed Health Insurance Deduction?

If you purchase self-employed health insurance, you may qualify for a special personal tax deduction for the self-employed on your personal federal, state and local income tax returns. If you qualify, you can deduct 100% of your health insurance premiums (including dental insurance) for yourself, your spouse and your dependent. However, your deduction cannot exceed the income from your business. 

How Do I Qualify for the Self-Employed Health Insurance Deduction?

To qualify for the self-employed health insurance tax deduction, you must: 

• Have no other health insurance coverage, including the eligibility to get coverage through your spouse or domestic partner; 
• Have income from your business. If you have no income, you can’t receive the deduction.

How Do I Get the Self-Employed Health Insurance Deduction?

Your business income and deductions are listed on a Schedule C, but because the self-employed health insurance deduction is a personal deduction, you will need to list it on your IRS 1040 form. If you have questions or are not sure how to apply for the deduction, check with your accountant or tax provider.

What Are Other Ways to Save on Health Insurance?

Self-employed health insurance can be pricey, but you have some options to help reduce your premium costs. 

• Affordable Care Act: Under this law, you could receive premium tax credits and expanded subsidies to help pay your self-employed health insurance premiums for coverage you buy in the state or federal Marketplace. To qualify, your household income should be between 100% and 400% of the federal poverty level. For 2021, you still may be able to qualify for a premium tax credit if your income is above 400% of the federal poverty level.¹ 
• Medicaid, Tricare, or other public options: There are numerous state and federal programs that offer help with health insurance costs or offer low- or no-cost coverage based on military service (Tricare), income level, disability or other factors. If you’re just getting started with your business or have low income, check to see what’s offered in your area. 

How Else Can I Save if I Own a Small Business?

As a small business owner, you may qualify for discounts on self-employed health insurance through industry organizations. Check with professional groups, unions and other associations to see if they have small group options available. Check out the National Association of Female Executives, the National Association for the Self-Employed, the Writers Guild of America, and the Freelancers Union, for example.  

If you do hire one or more employees, your business may qualify for small group plans that cost less than individual coverage. An insurance broker who specializes in small business may be able to help you. 

Next Steps 

Finding affordable self-employed health insurance that meets your health needs takes time and research. Compare all of your coverage options, then see if you will qualify for any subsidies or deductions on the plan you choose. Your efforts could be rewarded with big savings, which you can invest in growing your business.