Wondering about your choices for self employed medical health insurance? You might have a lot more than you realize, and they may be more affordable than you believe! Many small business owners like you are opting from traditional health insurance in support of the reimbursement model, which helps with budget control, is much more predictable, and boasts other benefits too. Let's walk-through what you need to know about health reimbursement arrangements for that self employed.
If you own a company that brings in income, however, you have no employees, you're considered self-employed. You’re likely either a sole proprietor or a single-member LLC. Sole Proprietorships could possibly get a little tricky because there's no separation between you and your business within the eyes from the IRS (i.e., you're a “pass-through entity” or “disregard entity”) and owners commonly are not considered to be employees even if you're working for your company full-time.
Self employed medical health insurance: the little group plan
Small group insurance: Small-group insurance has been the primary option for many small employers who are looking to offer health benefits. There are numerous options out there; you can choose from managed care (HMO, PPO, and POS), indemnity fee-for-service, and high-deductible health plans.
You can purchase small-group plans from an insurer, using a broker or private exchange, or using their state's SHOP Exchange. You are able to subscribe to this anytime, not just during open enrollment.
While these plans are well known, tax-free, and solid product options, they are also expensive, one-size-fits-all. They've unpredictable premium increases annually, and participation rate requirements.
But remember, only certain states guarantee self-employed individuals the opportunity to elect a group plan. Check out this post for more information on which states permit the self-employed to purchase group insurance.
Self employed medical health insurance: the HRA plan
A health reimbursement arrangement is definitely an affordable, tax-advantaged alternative to traditional insurance where employers reimburse their employees for individual insurance costs and medical expenses (if applicable) on the pre-tax basis.
The use of new reimbursement models like QSEHRA and ICHRA puts the employer’s reimbursements on nearly the same tax playing field as traditional select few plans, but without all of the hassles as well as.
QSEHRA: The Qualified Small Employer Health Reimbursement Arrangement, or QSEHRA, allows small employers to create aside a set amount of money each month that employees can use to buy individual health insurance or experience medical expenses, tax-free. What this means is employers reach offer benefits in a tax-efficient manner without the hassle or headache of administering a conventional group plan and employees can pick the plan they want. Reimbursement amounts can differ according to age and family size.
ICHRA: The Individual Coverage Health Reimbursement Arrangement has the same benefits as QSEHRA, but with no maximum contribution limits with no company size limit. In addition to the flexibility of varying rates based on age and family size like QSEHRA, the hallmark feature of ICHRA is that benefits could be scaled across different classes of employees. An ICHRA may also be integrated with a group plan, that is another distinction.
Does a self employed person qualify for an HRA?
Whether or not self-employed owners can participate in an HRA depends upon the way the plan and business are set up. In order for a business proprietor to participate in an HRA, they ought to be considered a worker from the business.
- C- Corps are legal entities separate from owners. Within C-corporation the company owner and dependents can utilize an HRA!
- S- Corps prevent businesses from being taxed by passing any profits and losses through shareholders personal income tax returns. Due to this set-up an S-Corp owner that owns a lot more than 2% of the company is considered self-employed and not a worker. The bad news? Since S-Corp owners aren't employees, they typically cannot take part in an HRA. The good news? Self-Employed individuals can already deduct some health insurance expenses without an HRA.
- Partnerships also are not subject to tax. Partners are directly taxed, making them self-employed and not entitled to participation. The Loophole: if the partner's spouse is really a W-2 employee (and not a partner spouse) then your owner can have fun playing the HRA as a dependent of the spouse.
- Sole-Proprietorships are unincorporated businesses managed by one person with no distinction between the business and owner. The owner is not a worker and will not qualify for the HRA unless their spouse is really a W-2 employee, then your owner can access the HRA as a dependent of the spouse (for QSEHRA only).
We strongly recommend S-Corp owners speak with their licensed tax professional or CPA.
If you're self-employed with no employees and you are married, this post walks you through the things you can do to sign up in an HRA.
Still have questions?
Hopefully we’ve had the opportunity to shed some light in your options. We have a lot of excellent resources open to you, including FAQ pages for the ICHRAand QSEHRA and many informational posts on our blog. You can also talk to our team of experts anytime!
