Self-employment doesn't mean emptying your pockets for adequate health insurance.
Employees with health insurance through a group plan enjoy low insurance premiums, good benefits and valuable protections through the Health Insurance Portability and Accountability Act. Unfortunately, those who must purchase individual health insurance usually have higher premiums with fewer benefits and minimal government protections. If you purchase your own health insurance, you may be able to alleviate the financial burden associated with private health insurance by taking advantage of helpful tax deductions and selecting health insurance policies with higher out-of-pocket expense limits.
Private Health Insurance
Private health insurance premiums are notoriously more expensive than group insurance rates, but you may be able to find affordable coverage by opting for a high deductible insurance policy that qualifies you for a health savings account, or HSA. Higher deductibles usually equate to lower monthly premiums, and you can contribute the money you save on your premiums to a tax-exempt HSA. The money you contribute to your HSA will remain non-taxable so long as you only use the funds for IRS-qualified medical expenses, such as deductibles, coinsurance, copays and prescription drugs. Unfortunately, you cannot use the account to pay for your health insurance premiums with non-taxable income.
Tax Help
If you must spend your money on private health insurance premiums, but are self-employed, the IRS will allow you to deduct 100 percent of the health insurance premiums you pay for yourself each year as a business expense to make healthcare more affordable for you and your family. The premiums you pay for your spouse and policy dependents under age 27 also qualify as a business deduction. If, however, you are not self-employed but must purchase your own health insurance, you can still deduct the amount of your health insurance premiums and other qualifying health expenses that surpass 7.5 percent of your adjusted gross income.
Considerations
If you are recently self-employed, perhaps due to a lay-off at your previous job, you may qualify for a continuation of your previous employer's health insurance plan under COBRA. While you will be responsible for paying for all of your health insurance premiums, you retain the protections available to you under HIPAA and will likely pay less than you would for the same insurance as an individually-purchased policy. If you do not qualify for COBRA, your spouse may be able to add you to her health insurance policy through work, or if you are under age 26, your parents may add you to their health insurance policy as a dependent regardless of whether or not you live with them.
The Affordable Care Act
Beginning in January 2014, provisions in The Affordable Care Act will require that every U.S. state establish a state-run health insurance exchange with multiple insurers and competitive rates. The insurance in exchanges will not discriminate against pre-existing conditions, nor will they impose waiting periods, annual coverage limits or lifetime limits. Additionally, individuals and self-employed people who must purchase private health insurance due to a lack of access to an employer's group insurance plan may qualify for tax credits if their household income is between 100 and 400 percent of the FPL, or federal poverty limit. Although the FPL is subject to change, as of 2011, a family of four with an income of less than $88,000 would qualify for the credit.
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