Man talking on cellphone with laptop; health insurance for self-employed

Stepping out to work for yourself: ✔

Starting your own business: ✔

Getting group health insurance when you’re self-employed: in progress.

Learn the best way to take this last task from “in progress” to “complete,” whether you want to buy group health insurance for yourself or to cover your employees.

What Is Being Self-Employed?

According to the IRS, you’re self-employed if you run a trade or business as an independent contractor, a sole proprietor, or as a member of a partnership, or if you’re in business for yourself, including having a part-time business.1 The U.S. Small Business Administration (SBA) considers a sole proprietor as an “unincorporated business owned and run by one individual with no distinction between the business and you, the owner.”2 Both sole proprietors and partnerships can hire employees, but the owners are still legally recognized as self-employed.3,4

Self-Employed Profile

In a 2020 small business profile report, the Small Business Administration Office of Advocacy stated that there were about 31.7 million small businesses in the U.S. and that approximately 25.7 million of those business were nonemployers—which are defined as businesses with no paid employees that are subject to federal income tax.5,6

Buying Group Health Insurance With No Employees

If you work for yourself and have no employees, you are considered a small group of one. You can only buy group health insurance when you are self-employed through an insurance company or agent in certain states. Check with your state insurance department to verify if group health insurance policies are sold to small groups of one. In most cases, however, a self-employed person with no employees would have to buy an individual health insurance policy.7

Buying Group Health Insurance With Employees

If you have at least one employee (someone who is not an independent contractor, your spouse, or a business partner or part-owner of the company), you can buy group health insurance through an agent, directly from an insurance company, or through the public exchange. Basically, you have more options for how you can buy a group health policy when you’re a self-employed business owner with employees.

Anther option is a stand-alone health reimbursement account (HRA). This is an employer-funded account from which you can be reimbursed tax-free for qualified medical expenses. There are several types of HRS, including the Individual Coverage HRA (ICHRA) available to businesses of any size, and the Qualified Small Employer HRA (QSEHRA), available to business with up to 49 employees.8,9 These two types of HRAs are considered an alternative to job-based health coverage, and require enrollment in a health plan for the money to be used.10

For a QSEHRA, the business owner sets an allowance for the QSEHRA, then employees maintain minimum essential health coverage and submit their medical expenses for tax-free reimbursement. Employees can be reimbursed up to $5,300 per year for individuals and up to $10,700 per year for families.11

It should also be noted that most employers must meet group health plans standards under federal law, which is known as the Employee Retirement Income Security Act (ERISA).12 ERISA requirements include providing key plan information to participants, providing fiduciary responsibilities, establishing an appeals process, and providing plan participants with the right to sue for benefits and fiduciary breaches.13 HealthMarkets can assist with ERISA compliance.

Buying Health Insurance for Self-Employed Workers Through the Public Exchange

The public exchange for employers, known as the Small Business Health Options (SHOP) Marketplace, categorizes business owners with no employees (hiring independent contractors doesn’t count as having employees) as self-employed and those with employees as small employers. To buy group health coverage through the SHOP, you must have at least one eligible full-time equivalent employee. An eligible employee cannot be a spouse, business partner, or part owner in your company. You usually need to have no more than 50 employees (some states allow up to 100) to buy a SHOP plan. If you want to enroll yourself in the plan, at least one of your employees must first be enrolled.14

Your small business may qualify for a tax credit of up to 50% if you have fewer than 25 employees, but this comes with certain requirements:15

  1. You have to buy a SHOP plan for at least two years.
  2. Your employees can’t earn more than $50,000 in average annual wages.
  3. You offer a qualified health plan through SHOP.
  4. You must pay for at least 50 percent of employees’ premium costs.

Choosing a Health Insurance Plan When Self-Employed

The type of group health plan you choose may depend on whether or not you have employees. If you have no employees, then how you go about choosing group health insurance for your self-employed business may be the same as if you were buying individual health coverage or family health insurance. If you have employees, then you have to consider things like how much you can afford to contribute toward employee premiums (most insurance companies require at least 50% of premium cost),16 the network of providers employees would have access to, and the amount employees would have to pay for a plan that has a deductible. Of course, the goal is to pick a plan that makes financial sense for your business while also being what’s best for your employees.

The chart below shows features of different types of group health insurance plans.

Plan Type Access to In-Network and Out-of-Network Providers Premium Cost Level Deductible Cost Level Best Type of Plan if:
Health Maintenance Organization (HMO)17 In-network only, except for emergencies* Usually lower than most other plans. Lower employee premiums means lower employer premium contributions. Usually has no deductible. If there is a deductible, typically lower than most other plans. You want care organized through a central provider (must have a primary care physician [PCP] and get referrals in most cases*) and lower out-of-pocket costs
Preferred Provider Organization (PPO)17 Both, but there’s a lower percentage of coverage out-of-network Usually has one of the highest premiums compared to other plan types Not the highest, but typically more than an HMO plan You want more flexibility to visit providers without going through a PCP or getting a referral.
Point of Service (POS)17 Both, but typically need a referral from PCP to go out-of-network Typically higher than an HMO, but lower than a PPO Typically higher than both an HMO and a PPO plan You want to have a mixture of guided healthcare from a PCP with the ability to get coverage out-of-network.
High Deductible Health Plans (HDHP)18 Depends—can work like an HMO, PPO, or POS Usually the lowest Typically the highest You want lower premiums and the ability to use your health insurance with a health savings account (HSA).
Fee-for-Service (FFS)19 Both Often the most expensive Can be lower than other plans, but the overall out-of-pocket costs are high because members typically pay for care up front and then file a reimbursement claim. You want the most flexibility to visit any provider you choose.

*A referral from a PCP is not needed for emergencies and routine care from an in-network obstetrician or gynecologist.20

Self-Employed Health Insurance Deduction

If you work for yourself, you could be eligible for a self-employed health insurance deduction. If so, you may be able to adjust your gross income when filing your tax return by deducting 100% of your health insurance premiums—including dental and long-term care—for your household (you and your dependents). To find out if you’re eligible, you should consult with a tax professional. If you are allowed to take the self-employed health insurance deduction, this will not prevent you from taking advantage of the Affordable Care Act’s premium tax credits, if you are eligible for those as well.21

Using HealthMarkets to Buy Health Insurance When Self-Employed

With HealthMarkets, you get access to a wide variety of health insurance plans. Having lots of health insurance rates to compare when you are self-employed can make it easy to find health insurance for yourself or your small group.

Another reason why you would want to work with HealthMarkets is to maximize your time. As a self-employed business owner, you may wear many hats—acting as the human resources, accounting, and creative team all in one. Juggling so many roles may not allow you the luxury to fully analyze all the different group health plans out there. You may also need to find out what health benefits employees are looking for. Again, time may not afford you the opportunity to meet with each employee.

Working With HealthMarkets May Help With Employee Satisfaction

Employees with thumbs up

Because HealthMarkets can provide employees with a greater level of service by assessing their health coverage needs, explaining different plan options, and even identifying where supplemental insurance can help, this may create better employee satisfaction and retention.

A 2020 Workplace Wellness study conducted by EBRI revealed that 54% of employees are very or extremely satisfied with their health insurance plan.22

A satisfied employee may also be more likely to recommend your company to job seekers. Offering group health insurance that meets your employees’ needs can also help with recruiting future employees.

More Choices for Group Health Insurance for Self-Employed Workers

HealthMarkets works with recognized insurance companies across the country to give small businesses access to their choice of health insurance plans. When shopping for a small business health plan, it’s important to reach out to an agent who specializes in this area. If you are interested in finding a plan for you small business, call a licensed insurance agent at (800) 976-5818 today.

Going the solo plan route? HealthMarkets can also help you review your individual health plan options. Start comparing health plans online now.

Call us Now at (800) 976-5818 or Get a Quote Online