Sole Proprietorship & Health Insurance

Working for yourself can be very rewarding, but it can be challenging as well. One of the biggest challenges of working as a sole proprietor is finding affordable health insurance coverage for yourself and your family. Individuals lack the bargaining power of large employers, and as a result they often face higher premium charges and fewer benefits.

Individual Market

• As a sole proprietor, you need to purchase your health care coverage on the individual market. Since individuals do not have the bargaining power that large companies do, this typically means you will face higher insurance premiums than you would if you worked for someone else. Finding an insurance broker can help you compare plans and choose the best one for your needs. You can start by visiting the National Association of Health Underwriters website.

Deductible Premiums

• One advantage you have as a sole proprietor is that you can deduct the cost of your health insurance premiums. This deduction can help you lower your taxable income, and therefore your tax liability. It is important to note that this deduction only applies if you are not eligible to participate in a group plan. That means that if you hold a regular job with access to health insurance and do freelance work on the side, you cannot write off the cost of an individual policy. But if you only work as a freelancer and do not have access to a group plan, you can take this valuable tax deduction.

Health Savings Account

• Opening a health savings account can provide you with a number of important benefits. For one thing, you can use your HSA to fund the cost of your health plan deductible, making it easier to cover those costs when the time comes. In addition, having an HSA in place can lower your tax bill, since you can take a tax deduction for the money you put in. In order to open or contribute to an HSA you must have a high deductible health plan first, so check with your insurance broker to see if your current plan qualifies.

High Deductible Health Plan

• For many sole proprietors and others shopping on the individual health care market, a high deductible health plan might be the most affordable option. With a high deductible health plan, or HDHP, you assume the risk for the first several thousand dollars worth of health care expenses. In return, you can get lower premiums than you would have for a more comprehensive policy. When comparing costs it helps to look at the total cost of coverage, including the monthly premiums, the deductibles and the total out-of-pocket costs. Adding up all the costs is the best way to tell if a high-deductible plan can really save you money compared to more traditional coverage.