Health Insurance Overview for Freelancers5 min read • May 08, 2019
When you detach yourself from the 9 – 5, it’s an amazing feeling. No more early morning commute, no more doing tasks that mean nothing to your soul, the list goes on and on.
Even though the freelance lifestyle allows you to live how you want, the reality is that you have to take care of the day to day items, like health insurance, that someone else used to handle for you.
Typically, when you work for a company that offers health insurance, it’s a pretty straightforward process. They sit you down, tell you a little about the company plan, you smile and nod, they sign you up, you get an ID card in the mail, or maybe you use an app, and you’re good to go.
When you freelance, you get to figure all that out on your own. Not to worry, it’s not hard if you follow a few basic steps.
Learn the Lingo
Health insurance uses unfamiliar terms. For example, instead of calling it a monthly payment, it’s called a premium. Rather than saying, you have to pay X before we pay, they mention a deductible. When you dive further, you find more confusing verbiage. Though it takes some getting used to, it’s vital to learn the basic lingo so you know what you’re looking at while researching to get the best coverage.
Let’s go over the most basic terms you’ll see.
Premium – the amount of money you pay the health insurance company each month (or quarter) so they provide you coverage.
Deductible – the amount you pay, for covered services, before your health insurance company begins paying. Deductibles can be structured in many ways. Some plans have a comprehensive deductible, which applies to all services, while others have separate deductibles for covered services, like prescription drug coverage. Many times, plans with higher deductibles have lower premiums, and plans with lower deductibles have higher premiums. As a rule of thumb, try to keep your deductible to no more than 5% of your gross annual income.
Co-pay – a flat dollar amount you pay for a covered service. As an example, you may have a $50 copayment for a doctor visit and a $10 copayment for each generic drug prescription. If you visit the doctor often, be sure to look for a plan with a low co-pay.
Co-insurance – the percentage of the allowed service charges you’re required to pay. Some plans may cover 80%, and you have to pay the remaining 20%. In that case, the 20% would be the co-insurance. You’re usually responsible to pay the co-insurance after you’ve met your annual deductible. For example, if you have an 80/20 plan, and a visit to your doctor costs $100, you’ll owe $20 once your deductible is met.
Maximum out-of-pocket cost – the maximum amount you’ll pay for covered services during the benefit period (usually one year). To note: the out-of-pocket maximum does not include costs such as premiums, balance-billed charges or uncovered services. Out-of-pocket maximums vary but may include copayments, deductibles, and co-insurance. Once you’ve paid your out-of-pocket maximum, your insurance will kick in and pay 100% of the allowed amount for covered expenses.
Determine the Type of Health Insurance You Need
Once you’re familiar with the lingo, you can determine the type of insurance you need.
First, decide who you plan to cover. Will you be purchasing insurance for only yourself, or do you need to add your spouse/partner and/or kids to your plan?
Next, consider how you want to spend money on health insurance. If you don’t utilize healthcare services often, check out high deductible health plans (HDHPs) that generally have low monthly premiums, with possible high deductibles. If you or anyone you’ll have on your policy requires several doctor visits and/or prescriptions, a more traditional plan, with higher monthly premiums and lower deductibles may be a better option.
You can also look into alternative options for healthcare coverage such as:
- Freelancers Union
- Membership Organizations
- Faith-Based Healthcare Options
- Short-Term Health Plans
- Flat Fee/Membership/Concierge Medicine
Consider Adding Savings Options
The cost of healthcare keeps going up. Having adequate healthcare coverage is vital. In addition to a health insurance plan or alternate type of coverage, consider a health savings option.
If you decide to go with a qualified HDHP, consider opening a Health Savings Account (HSA) to go with it.
An HSA is a tax-advantaged health care savings account that must be paired with a qualified HDHP. You contribute pre-tax funds into your account, and you can use the money to pay for current as well as future medical expenses.
Contributions you make to an HSA roll over year to year, so you don’t have to worry about “using it or losing it” at the end of the year.
HSAs offer you two tax-advantages:
- The money you contribute to your HSA reduces your taxable income for the year.
- When you use HSA money to purchase qualified medical expenses, you won’t owe tax on those purchases.
In addition to helping save for medical expenses, HSAs are an excellent way to save for retirement. Because you own your HSA, you can take it with you, from project to project, job to job, and the money stays put year after year. By the time you’re ready to retire, you’ll have a nice addition to your nest egg.
Once you’ve determined what type of health insurance or coverage you’re going to get, the next step is to purchase it.
Nowadays, it’s pretty simple. You can go to Healthcare.gov, compare several plans and purchase your policy online. Or, you can go to a health insurance company’s website and shop for plans. If you’d be more comfortable having someone assist you in making your purchase, you can contact a healthcare agent or broker, someone uniquely qualified to help people find the best healthcare options, to help you buy your insurance. There’s no doubt that securing health insurance can be a daunting task as a freelancer. If you take time to learn the basics, figure out what you need and find your best option, you can rest assured your health care is covered while you continue doing what you do best.