Compared to regular employees, self-employed individuals are definitely at a disadvantage when it comes to health care insurance. Most companies, even small sized ones, offer healthcare to their employees. Freelancers, however, don’t benefit from such a set up. Fortunately, it has become a lot easier for self-employed individuals to enjoy several more protections than they did in just the recent past. However, even though many freelancers are now eligible to reduce the expenses involved in their coverage through a tax credit, it’s still vital to have clear knowledge of what health care entails for them. Here are some important things to keep in mind if you’re self-employed if you want to make the right health care decisions.
As the introduction mentions, health care insurance is a lot more expensive for the self-employed. This is in large part due to the fact that most people’s out of pocket expenses only cover part of the cost of their monthly premiums. Most employees actually pay only around 17% of what the premiums actually cost. This means that you are likely in for a bit of a shock when you see how much you’ll have to pay.
However, do not let this prevent you from purchasing insurance. You’re liable to tax penalties if you aren’t covered. More importantly, if you do suddenly suffer from a crisis or medical condition, you could very well end up paying a lot more than what you saved. There will be literally no cap on your personal expenses in such a case.
It’s not uncommon for the self-employed to do exactly what this heading is warning against in order to reduce their expenses. One way they do this is by combining some short term plans to cover as many issues as possible while paying lower monthly premiums. The problem is that such plans aren’t legally required to be on par with the standards outlined by the ACA. So if you have a pre-existing condition or want services like prescription drugs or preventative care, such a plan might leave you standing in the dust. Some benefits could be subject to yearly, or even lifetime limits.
And let’s not forget that these plans are technically not counted as insurance, meaning that you’re still going to have to pay that tax penalty.
Whatever subsidy you get through the ACA’s tax credit is based largely on the income that you make per year. Now this means that when you first enroll you are required to provide an estimate of said income. When it’s tax time, you’ll have to square that initial estimate with your actual income that year so that you get the right amount of subsidy. This isn’t such a problem for people with a steady source of income. However, most self-employed people find a lot of variation in their yearly income. So you need to be careful when estimating income. There is one thing you can take advantage of, however. Freelancers are free to deduct the expenses involved in their premiums even if the standard deduction is more than their other deductible expenses. This should decrease the total amount of taxable income.