<img src="//bat.bing.com/action/0?ti=5067266&amp;Ver=2" height="0" width="0" style="display:none; visibility: hidden;">

We've updated one of our most popular materials. See what's new in our guide to MERPs.

Self-Employed Health Insurance Options

Health Insurance Options Best Suited for the Self-Employed

If you’re self-employed, know that you do indeed have options for health insurance. This section outlines Health_insurance_options_self_employedhealth insurance options for the self-employed.

Option #1 - Individual Health Insurance

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.

Option #2 - Group Health Insurance

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).

How to Navigate Health Insurance