office-work-1149087_1920Finding affordable health insurance poses a challenge for a number of people, and individuals who areĀ self-employed make up a large part of that group. Many are seeing their private insurance rates skyrocket and are electing to drop coverage, since the penalty they’ll pay when they file their taxes is much less than their annual premium.

Going without health coverage isn’t advisable, since accidents and illnesses can occur suddenly and unexpectedly. Not to mention, medical bills are the number one cause of consumer bankruptcy. So what options are available for people who are self-employed?

Tax Benefits

Sometimes the high cost of purchasing health insurance as a self-employed person can be somewhat offset by the deductions you can claim. For instance, whereas employed people can only receive a deduction if their out-of-pocket medical costs are more than 10% of their Adjusted Gross Income AND they have enough other itemizations to exceed the standard deduction. Not many people meet these criteria.

Self-employed people, on the other hand, can deduct their health insurance premiums on Line 29 of their Form 1040 as an “above-the-line” deduction. Note that’s only if you’re reporting a profit on your Schedule C. Otherwise it’ll go as an itemized deduction on Schedule A, and you may or may not see any benefit. It also won’t work if you’re eligible for coverage under your spouse’s employer-provided plan.

Catastrophic health plans

These plans offer very limited benefits, but they also cost relatively little. Deductibles, copayments, and coinsurance amounts are higher, but you have the peace of mind of knowing that you’re covered in the event that something unexpected did occur.

Health Savings Accounts (HSAs)

While it may not make sense to some to pay anything at all for coverage if you’re not likely to even meet your deductible anyway, it’s important to note that many high-deductible plans come with an accompanying Health Savings Account. These allow you to set aside funds to help pay for your health care expenses and those you may have in the future.

There are limits to how much you can save ($3,350/individual and $6,750/family for 2016), but if you’re over 55 you can put in $1000 more per year. These contributions are also above-the-line deductions. Interest earned in HSAs is tax-free as are withdrawals for qualified expenses.

Unlike health care flexible spending accounts (FSAs), which you lose if you don’t use the money before year’s end, there’s no limit on how much you can carry over in an HSA or for how long. As such, it functions as another form of retirement savings. After age 65, funds can be withdrawn penalty-free for any reason. However, if it isn’t for a qualified medical expense, you will still pay taxes on the earnings.

 

 

 

For more information about these and other options for self-employed consumers, check out this recent article on Forbes or contact Sequoyah Group today.