Here’s what you need to know about health insurance and tax deductions for the self-employed.
Thinking of striking out on your own? Or perhaps you’re already among the more than 16 million Americans who are self-employed. Being your own boss certainly has its perks in terms of freedom and flexibility. But choosing — and paying for — your own health insurance can seem daunting. Maybe that’s why one in four self-employed workers currently lack coverage.
Yet, self-employed health insurance is essential. It’s one of the best ways to save money in the long term and, even more importantly, to secure peace of mind for you and your family. Whether you’re an independent contractor, freelancer, sole proprietor or gig worker, here’s why you need coverage — and how you can find a plan that works for you through Covered California.
1. Health Insurance Options for the Self-Employed
It’s easier than ever to find a health insurance plan that fits your budget when you apply through Covered California. A free one-stop-shop service, Covered California connects Californians to quality brand-name health insurance and financial help to pay for it.
Through Covered California, you can also get enrollment support to help you navigate your options. There are a number of elements to consider when choosing a plan — think of your current health needs and budget for starters. Key differences in Covered California health plans include:
- Coverage level: All plans fall into one of four tiers of coverage: Bronze, Silver, Gold and Platinum. The different tiers indicate how you and the insurance company will split the cost of care. Bronze plans typically have the lowest monthly premium and the highest out-of-pocket costs, while the opposite is true for Platinum plans.
- Plan type: Within the tiers of coverage, you can also choose different types of plans like HMOs, PPOs and EPOs. These plans differ in your flexibility to see different in-network and out-of-network providers. Learn more here.
- Insurance company: Companies may offer different monthly premium pricing and provider networks, as well.
What won’t change no matter which plan you choose? All plans through Covered California offer the same essential health benefits, including emergency care, preventive services and more. Keep in mind you’ll need to apply during open enrollment, or during a special enrollment period if you have a qualifying life event (like losing health care coverage after leaving a job).
Beyond Covered California, there are other options for securing coverage. Under certain circumstances, you may be able to piggyback on a partner’s employer-sponsored plan or opt for COBRA health insurance.
2. Self-Employed Health Insurance & Premium Tax Credits
Financial help can go a long way toward making health insurance more affordable. Premium tax credits are a form of financial help from the federal government that act like a discount to lower the cost of your monthly premium. And thanks to the American Rescue Plan and the Inflation Reduction Act, more people than ever are eligible: Nearly 9 out of 10 enrollees receive financial help when they apply through Covered California — and the average savings is $5,000 per year. Depending on your income, you might even qualify for a $10 monthly premium.
It’s important to keep tabs on your estimated annual income and report any changes. If you underestimate your income, you could owe some of that financial help back come tax time.
3. Self-Employed Health Insurance Deductions
Most people can only deduct insurance premiums if their total healthcare costs exceed 7.5 percent of their household income. But as a self-employed worker, 100 percent of your insurance premiums counts as a tax deduction, thereby lowering your taxable income. Long-term care insurance (coverage for services like nursing homes and home health aides) may also be partially deductible, depending on your age. (Covered California does not offer long-term care insurance.)
4. Stay Healthy
Research shows that people who stay covered live longer, healthier lives. It makes sense: Free health screenings, vaccinations and other preventive services are part of all insurance plans available through Covered California, so you reduce your risk of getting sick in the first place. Plus, if you need more targeted care, you have greater access to specialists, testing and treatments.
5. Avoid a Tax Penalty
California has an individual mandate, which means you need to stay covered or you risk paying a penalty at tax time. That penalty can be as high as $900 per adult and $450 per child. The amount you owe is based on factors, including your household size, income and how many months you’ve gone uncovered — estimate what that might look like for you here.
6. Safeguard Your Self-Employed Income
You work hard for every dollar, so why risk busting your bank on a $30,000 charge for a three-day hospital stay? Health insurance helps you safeguard yourself from these kinds of unexpected high bills. You’ll preserve your income in small ways, too, with lower out-of-pocket medical expenses and tax deductions. Since sick-leave pay isn’t an option for many self-employed workers, getting the best possible care quickly may help lessen recovery time in case of illness, an accident or other health emergency.
7. Covered California Is Here to Help
With online, phone and in-person resources, Covered California can help you navigate your options and access financial help to pay for health insurance, too. Here’s how to get started. If you have any questions or need help enrolling, contact us online or call the Covered California Service Center at 800.300.1506.