What the Self-Employed Need to Know About Obamacare
Sole proprietorships are among the millions of individuals expected to buy health insurance through the state-based marketplaces which will start enrolling consumers on Oct. 1. Under the new Affordable Care Act, self-employed people with no employees are considered individuals even if they hire independent contractors, and will be required to purchase insurance for themselves or face a fee.
Sole proprietors might find more entrepreneurs joining their ranks once the ACA marketplaces go into effect. Health reform advocates believe the law will free workers of "job lock" caused by the need to hold on to employer-sponsored group health coverage. A report this year co-authored by the Urban Institute and the Georgetown University Health Policy Institute's Center on Health Insurance Reforms estimated that 1.5 million more Americans will be self-employed in 2014 because of reforms under the ACA.
Since many self-employed individuals currently lack health insurance, they might be researching their insurance options for the first time. Open enrollment runs until March 31, and if you want to know what's available to you, we've outlined your main options below.
Option #1: Do nothing and forgo health insurance.The landmark law requires that most Americans have coverage starting next year or face a fine. Fees for those who opt not to buy individual coverage for 2014 is the higher of 1 percent of annual income or $95 per person, increasing yearly to the higher of 2.5 percent of income or $695 per person. There are exceptions that would allow some people an exemption from the fee. This could include those who would qualify for Medicaid under new, higher U.S. income limits, but who live in states that aren't expanding Medicaid eligibility and who may not qualify for marketplace subsidies. Talk with a broker, accountant or other professional familiar with the ACA, or chat online with a representative at the government's HealthCare.gov website, to see if you might qualify for an exemption.
Option #2: Keep the health coverage you have. Under the ACA, if you have a plan that was in place prior to March 23, 2010, it might be grandfathered in. However, these plans might not have the same protections created by the health reforms. For instance, a grandfathered individual plan doesn't have to cover you if you have a pre-existing condition. Since many self-employed individuals tended to purchase catastrophic coverage, those plans won't likely meet the new law's requirements and you'll need to get shopping regardless. (The state marketplaces will have catastrophic plans, including free preventive benefits and three annual, no-cost primary care visits, for people younger than 30 and certain others with limited incomes.) Consult with your broker to see if your current plan meets requirements.
Individuals who would like to delay researching the impact of health reforms on their coverage may be able to renew their existing plans by December 31, 2013. Such renewed policies, however, won't offer the premium subsidies available through the exchanges and aren't likely to provide the broad coverage guarantees required under Obamacare. Be sure to read carefully and understand your options thoroughly before making any commitments.
Reform advocates at Georgetown University's Center on Health Insurance Reforms warn that while some younger, healthier applicants could benefit in the short term, consumers renewing or starting plans this year that extend into 2014 may be forgoing new benefits they'd have with coverage that goes into effect on or after Jan. 1, 2014.
Option #3: Find a plan through an exchange. Depending on family size and income, solo entrepreneurs and other individuals may qualify for federal subsidies if they purchase plans through their state-based marketplaces.
Through your state marketplace, you'll be able to compare plans side-by-side, including premiums, deductibles and out-of-pocket costs. All marketplace plans will offer an array of "essential health benefits," including emergency services, hospitalization, maternity and newborn care, lab services, chronic disease management, pediatric care, rehabilitative care, mental health and substance abuse services, and prescription drug coverage.
Additionally, marketplace plans will fit into one of four possible coverage levels, based on the percentages of costs, such as deductibles, copayments and coinsurance, shared by consumers. As the National Association of Insurance Commissioners notes, bronze plans must cover 60 percent of an average person's expected costs, silver plans 70 percent, gold plans 80 percent and platinum plans 90 percent.
The Kaiser Family Foundation has a tool to help people estimate their costs and potential savings, although exact prices won't be available until open enrollment gets underway.
Option #4: Find a plan outside the exchanges. People also will be able to buy insurance outside the marketplaces, through insurance agents or private-sector online brokerages. Independent agents know the market well and can usually offer you options that will fit your needs. Be aware though that federal subsidies are available only through the government-overseen exchanges so you might not benefit from price breaks on premiums and out-of-pocket costs such as copayments and deductibles.
Option #5: Hire someone. Once you have an employee, you are no longer a sole proprietor. As a micro-business, you are not obligated to purchase health insurance for your employees. The status makes you eligible to purchase insurance from your state's small business exchange, also called a Small Business Health Options Program (SHOP) Marketplace. Outside the exchange, some agents will also sell group premiums for 2 or more employees. If you decide being a sole proprietor no longer works for your business, make sure that you hire a full-time employee, the type whose income you report at the end of the year with a W-2. Hiring independent contractors will not make you eligible for the SHOP exchanges.