Recent trends reveal that more people work for themselves today than in recent years.
The Bureau of Labor Statistics (BLS) reports there were over 15 million self-employed Americans as of 2015 – or over 10 percent of all workers. The BLS also reports that there are over 53 million freelancers in America – or one out of every three workers. Regardless of which statistic you look at, it’s clear we’re moving more towards a non-traditional economy.
This can bring great freedom on an individual level, but it also brings a lot of added responsibility as self-employed individuals often lose the framework of benefits offered by a traditional employer. One key part of that framework is insurance. Here’s what to keep in mind if you’re self-employed and looking to replace the benefits you had with your former employer.
Buying Health Insurance as a Self-Employed Individual
Health insurance is a key component of most benefit packages. When you’re self-employed, you give up that benefit. Up until the passage of the Affordable Care Act (ACA) getting coverage proved more difficult, if not impossible, if you had a preexisting condition. Thankfully, that has changed with the implementation of the ACA. “Under the Affordable Care Act, individual health insurance plans must pay for preventive care 100 percent,” says Kevin Haney, President and founder of A.S.K. Benefit Solutions. “Policyholders do not have to satisfy the deductible, pay coinsurance, or make a copayment.”
That being said, health insurance isn’t always cheap, and you may be tempted to forego it due to cost. It’s not wise to give into that temptation as a self-employed individual as you can face fines, not to mention the risk of not having coverage when ill. “A freelancer has similar needs for life, health and disability insurance as any other worker. Nobody is immune from becoming sick, suffering an accident, or dying while their loved ones still depend on their income,” says Haney.
You can either choose to get coverage through the government marketplace or state exchanges. If you’re concerned about cost, you may be able to qualify for subsidies depending on your income. Regardless of which you choose, it’s best to avoid short-term health care plans as they often lack key features and are not fully ACA compliant, thereby opening you up to potential fines.
Should You Get COBRA coverage?
If you recently left a traditional full-time job, you may have been offered coverage through the Consolidated Omnibus Budget Reconciliation Act (COBRA). COBRA allows you to continue coverage received through your former employer (for up to 36 months), but COBRA plans can prove to be quite expensive as you’re now responsible for the entire cost.
An employer often subsidizes the cost of health coverage. You lose that benefit once leaving the traditional workforce. “Individual plans bought through a state exchange may be far more affordable than COBRA. The federal government provides income-based premium and cost-sharing subsidies. You qualify for subsidies based on annual income. New freelancers often begin their journey with very little income. Therefore, they are likely to qualify for assistance,” says Haney revealing the risk of not doing the due diligence of choosing COBRA coverage vs. pursuing coverage through an exchange.
Beyond Your Health
Health insurance is clearly important to have, especially if you have a family. However, that’s not the only type of insurance coverage you must consider when self-employed. Two other key types of insurance a traditional employer may offer are disability and life insurance. In the case of many larger employers, you may have had both types of coverage, albeit at a greatly subsidized cost.
When you’re self-employed, you need to take both coverage options to heart. In a traditional job, you will have paid sick time and short-term disability, amongst other benefits. This can help replace income lost to illness or disability. As a self-employed individual, you lose that safety net. If you become ill or disabled, it impacts your earning ability and can potentially put your assets or home at risk.
Like disability insurance, life insurance coverage is something you may have had through your employer in the form of group life insurance. If you lost that coverage, it’s important to replace it with similar coverage. Like disability, life insurance helps provide a safety net and protect your family in the event of your passing and provide for their needs.
Preparing for Emergencies
In a traditional job you have the framework to provide relief through emergencies like paid sick leave in addition to previously mentioned benefits. You lose a lot of that as a self-employed individual, but it is replaceable. There are two key ways to replace a lot of that, with the first being a Health Savings Account (HSA). Assuming you have a High Deductible Health Plan (HDHP), you can pair it with an HSA to help cover medical expenses, and that’s not to mention the tax benefits found with the HSA.
The second way to replace some lost benefits is through having an adequately funded emergency fund. An emergency fund provides a safety net in the event that you become ill or become temporarily disabled – not to mention losing a client. Just remember to replenish the emergency fund if you have to dip into it in order to keep it as a benefit.
There are a lot of great things about being self-employed. It also brings a lot of responsibility; make sure to take care to get the coverage you need, so you don’t open yourself up to unnecessary risk.