Of all the segments of the population that will be affected by health care reform beginning in 2014, self-employed individuals – namely contractors and freelancers – have been most left out of the conversation. As a result many self-employed people are confused about their options and responsibilities under Obamacare. Here are some facts for those self-employed looking for answers:
Self-Employed Individuals Must Get Coverage
All non-exempt Americans will be required to purchase health insurance in 2014 or be faced with an annual penalty. The penalty will be just $95 for 2014, but will increase to $695 by 2016. Many contractors and freelancers do not currently have health insurance, but they will need to have it by January 1, 2014. If an individual’s income falls at or below 138 percent of the national poverty level, he or she will be eligible for Medicaid in states where it was expanded. This is an option many freelancers will have in lieu of purchasing an individual policy.
Of course, freelancers and contractors can choose to pay the annual penalty instead of purchasing insurance or qualifying for Medicaid. This might be a reasonable alternative for at least the first year while they wait to see how Obamacare impacts the 22 million self-employed Americans once the exchanges open for business on October 1.
Your Costs Are Likely to Increase
It has been the norm that self-employed individuals often purchase catastrophic plans instead of commercial insurance plans because they are cheaper. However, these plans do not meet Obamacare's requirements. This means that freelancers and contractors are going to have to purchase more comprehensive insurance coverage, which will undoubtedly cost more than what they are used to paying.
ACA Boosts Your Options
Obamacare will make the headache of finding health care at a reasonable price easier for freelancers and contractors. Self-employed individuals will be able to access health insurance through the state health insurance exchanges beginning in October. These exchanges are meant to provide consumers with an easy way to compare plans and costs through a single consumer portal. Most states will have several commercial insurance options, but the exact number of participating companies varies widely from state to state. In some states, Consumer Operated and Oriented Plans (co-ops) will be offered through their exchanges and are open to everyone, including self-employed freelancers and contractors.
The key component of the co-ops resides in the elimination of the for-profit insurance industry from the cost of premiums. They will pool the risk across all enrolled residents, and this in turn will theoretically drive down premiums for participants. In addition, they will promote competition among the other for-profit companies selling insurance on exchanges, potentially making premiums even more affordable.
Analyze the Effects Early
Self-employed individuals could very well be the hardest hit when health insurance reform goes into effect. The purchase of comprehensive health insurance is sure to affect their bottom line, but it is not yet known by how much. Until the rates are published on each state’s health insurance exchange, most freelancers and contractors won’t be able to predict their costs. That being said, it is important for self-employed individuals to begin planning for the mandate.
They can begin by calculating their annual income to determine whether or not they will qualify for Medicaid under the new rules. The federal poverty level for 2013 is 11,490 for an individual and $23,550 for a family of four. At 138 (in states that chose to expand) percent of those levels, a self-employed individual making $15,856 or less could qualify for Medicaid. For a family of four, if the freelancer makes $32,499 or less, Medicaid could be an option.
Even if a freelancer or contractor does not qualify for Medicaid, he or she could still be eligible for government subsidies with an income of $45,000 per year or less, or $94,000 or less for a family of four. The subsidies will be distributed on a sliding scale, so it is best to use an online calculator to determine exact credits. Knowing how much assistance contractors and freelancers could get will go a long way in helping them determine which path to follow when it’s time to enroll.
Be aware that the state health insurance exchanges are aiming to integrate individuals’ income tax information into the applications for health care. This will allow people to complete one application to determine eligibility for Medicaid, federal subsidies and other programs. Whatever income was reported on a 2012 tax return will be used to calculate assistance.