Individual health insurance is a type of policy an individual purchases for himself and/or his family. Individual health insurance plans can be purchased through your state’s Health Insurance Marketplace, contacting a broker, or contacting any individual health insurance company.
Features of individual health insurance are:
It’s high-quality health coverage for you and your family.
It’s now available to everyone, regardless of health conditions.
It costs 20% to 60% less compared to work-based (“group”) health insurance. And, premium tax credits are available to help lower the cost even more.
It’s flexible - you choose your doctors and clinics.
It’s portable - you can take your plan with you to any job (as long as you’re still paying the premium).
The business can reimburse you (the owner) for the cost, and tax-advantages are available for some type of business owners.
Options for Tax Benefits on Individual Health Insurance
As a self-employed owner purchasing individual health insurance, you have a few options for the business contributing, and/or receiving tax benefits.
Self-Employed Tax Deduction: Most self-employed taxpayers can deduct health insurance premiums, including age-based premiums for long-term care coverage. The line 29 deduction on the 1040 return is available to those whose business income shows a profit, who are not eligible for employer-provided insurance (either from a side job or a spouse’s job), and who meet other criteria. Read more about this deduction.
Premium Reimbursement Arrangement: With this option, the business can contribute and receive tax benefits by setting up a tax-preferred premium reimbursement plan. As a small business owner, you have two options for tax-free reimbursement of individual health insurance:
If you are a one-person business, you can set up a one-person Stand-alone Health Reimbursement Arrangement (HRA) to reimburse yourself tax-free for your premium and medical expenses. HRAs are tax deductible to you as the employer, and tax-free to you as the employee. However, there are some restrictions on the tax benefits for some types of owners. Read more about HRA owner eligibility.
If you have two or more employees, or expect to hire W2 employees in the near future, you can set up a Healthcare Reimbursement Plan (HRP). An HRP allows you to reimburse your employees (and yourself) tax-free for their individual insurance premiums. But again, there are some restrictions on the tax-benefits for some types of owners.
Group health insurance is the second main health insurance option available to some self-employed owners.
Group health insurance is a type of policy purchased by an employer (or organization such as a Union) to cover eligible participants and their dependents. The premium cost is shared between the employer and employee.
Small businesses can purchase a group health insurance through a broker, online, or through the ACA Small Business Health Options Program (SHOP) Marketplace. Small businesses can also join a small group health insurance plan through a co-op, PEO, or Union organization.
However, two major limitations of group health insurance for the self-employed are that:
Group health insurance is very expensive (average premium was $6,025/year in 2014 to cover a single person, $16,834/year for family coverage), and
Self-employed owners without employees likely will not qualify for a small group health insurance plan (unless purchased through a co-op, PEO, Union, etc).