Are you unsure of your options for self-employed medical insurance? There are more options than you think, and they may be cheaper than you thought! You are not alone in opting for reimbursement plans over traditional medical insurance. They help with budget management, are more predictable and have other benefits. We’ll walk you through what you need to know about health reimbursement plans for self-employed people.
If you own a business that generates revenue but you do not have employees, you are considered self-employed. You’re probably either a sole owner or a one-member LLC. Sole Proprietorships are a bit difficult because there is no separation between the owner and the business in the eyes of the IRS.
Small group medical insurance for self-employed workers
Small group insurance: For many small businesses, this is the best option for providing health benefits. You can choose from a variety of options, including managed care plans (HMOs, PPOs, and POSs), indemnity-based fee-for service health plans, or high-deductible insurance.
Small-group insurance plans can be purchased directly from the insurer, through an agent or personal broker, or at SHOP Change in their state. This is something you can do at any time, not just during open enrollment.
These plans, while well-known and tax-free with a wide range of products, are also expensive, as they are one-size fits all. These plans have unpredictable increases in premiums from one year to the next, as well as participation charges.
But keep in mind that only certain states allow self-employed individuals to choose a group plan. Check out this post for more information on which states allow self-employed people to purchase group insurance.
The HRA plan: Self-employed medical insurance
A health reimbursement association (HRA) is a tax-advantaged alternative to traditional insurance policies. It allows employers to reimburse employees for their insurance premiums and any medical expenses they incur on a pretax basis.
Using new reimbursement models like QSEHRA or ICHRA, the employer’s reimbursements are taxed on the same basis as traditional small group plans. However, there are no requirements and hassles.
QSEHRA – The Certified Small Employer Health Reimbursement (QSEHRA) Association allows small employers to set aside a fixed amount each month for their employees to use tax-free to purchase individual medical insurance, or to pay medical bills. Employers can offer benefits in a tax efficient manner without the hassle of managing a traditional group plan. Employees are able to choose the plan that they want. The amount of reimbursement can vary based on the age and size of your household.
ICHRA: Individual Protection Well being Reimbursement Association (PPHRA) has the same advantages as QSEHRA but without any contribution limit and with no company size restriction. ICHRA has the flexibility to charge different rates based mostly on household size and age, just like QSEHRA. However, its hallmark feature is the ability to scale benefits across completely different classes of employees. A group plan can also be integrated with an ICHRA, which is another distinction.
Can a person who is self-employed qualify for a HRA?
How the business and plan are set up will determine whether or not a self-employed home owner can participate in an HRA. For a business owner to participate in an HRA they must be considered an employee of the company.
- C-Corps are separate legal entities from their owners. A C-corporation allows the business owner and their dependents to take advantage of HRA benefits.
- S-Corps prevent companies from being taxed because they pass on any profits and losses to shareholders’ private tax returns. This setup means that an S-Corp owner who owns more than 2% in the company is considered self-employed, and not an employee. What’s the bad news? S-Corp owners aren’t employees, so they can’t participate in HRAs. What’s the good news? The good news is that self-employed people can deduct certain medical insurance costs without an HRA.
- Partnerships are also usually exempt from revenue tax. Companions, who are self-employed by default, cannot participate in the HRA because they are immediately taxed. The loophole: If the accomplice’s spouse is a W-2 employee (and not an accomplice partner), then the proprietor may be eligible to participate in the HRA.
- Unincorporated businesses are sole-proprietorships, which are owned and operated by a single person. There is no distinction made between the business and owner. The owner can’t be a worker or qualify for HRA unless their partner is an employee on a W-2. In this case, the proprietor may qualify as a dependent.
We recommend that S-Corp owners consult their CPA or licensed tax professional.
If you are self-employed and married but have no employees, This article will walk you through the steps to participate in an HRA.
Still have questions?
We hope we were able to help you make a decision. We have a lot of great resources available to you now, including FAQ pages for ICHRA and QSEHRA as well as a variety of informative posts on our blog. You can also speak to a member of our team at any time!
