Health insurance for the self-employed

The ACA Marketplace

The Affordable Care Act (ACA) opened up new self-employed health insurance opportunities by making some important changes to the individual/family health insurance market.

For example, the ACA eliminated medical underwriting, which means that health plans can no longer consider a person’s medical history when determining their eligibility, coverage, or premium. The ACA requires individual health insurance policies to cover the essential health benefits (EHBs), helping to ensure that policies are no longer issued with significant gaps in the services they cover. It also created income-based premium tax credits (subsidies) that can make the monthly premiums much more affordable than they would otherwise be.

The elimination of medical underwriting and the coverage of EHBs is true for all individual/family major medical health plans, but subsidies are only available through the ACA Marketplace (exchange) in each state. So you’ll need to enroll via the Marketplace to take advantage of any available financial assistance.

You can sign up for individual/family health coverage during the annual open enrollment period (November 1 through January 15 in most states), or during a special enrollment period. In most cases, a special enrollment period requires a qualifying life event.

If you quit your job to become self-employed and thus lose access to coverage under your previous employer’s plan, that will trigger a special enrollment period when you can enroll in a Marketplace plan.

Read our guide to special enrollment periods.

See if you qualify for Obamacare subsidies

Coverage under your spouse’s plan

If your spouse’s employer offers health insurance, you are likely eligible to be covered under that plan since almost all employer-sponsored plans offer spousal coverage.¹ Like individual market coverage, enrollment in an employer’s health plan is limited to an annual open enrollment period (dates set by the employer) or a special enrollment period due to a qualifying life event. (Rules for these are specific to employer-sponsored coverage.)²

If you lose access to coverage under your previous employer’s plan, it will trigger a special enrollment period during which you can enroll in your spouse’s plan (assuming the plan offers coverage to spouses). But be aware that the special enrollment period for the employer’s plan only has to last 30 days after the termination of your old coverage,² which is half as long as the special enrollment period for an individual market plan.³

Extending your group coverage with COBRA

If you’re leaving a job where you’ve had group health insurance and the plan is subject to COBRA, you can extend your group coverage for up to 18 or 36 months, depending on the circumstances.

COBRA coverage cannot continue indefinitely. But it can be a good temporary solution if you’re just testing the self-employment waters, or if you plan to transition to another type of coverage later on.

If you’ve already paid some out-of-pocket medical costs for the current year, electing COBRA will prevent you from having to start over at $0 in accumulated out-of-pocket costs under a new plan.

But on the other hand, COBRA will generally mean that you pay the entire cost of the group plan, plus an administrative fee of up to 2%.⁴ The average employer pays the majority of the total premium costs for their employees’ coverage. So the transition to COBRA can mean a sharp increase in the amount you pay for the coverage, since you’ll have to start paying the portion that the employer used to pay, plus the administrative fee. (Some employers offer COBRA subsidies as part of a severance package.)

Read: Deciding between COBRA and a Marketplace policy

Medicaid

Depending on where you live and how much your household earns, you might find that Medicaid can be your self-employed health insurance. Most states have expanded Medicaid under the ACA,⁵ making coverage available to adults under age 65 with household income up to 138% of the federal poverty level (coverage for children extends to higher income levels in most states).⁶

In the continental US in 2024, 138% of the poverty level amounts to $20,782 in annual income for a single adult, and $43,056 for a household of four (higher in Alaska and Hawaii).⁷

If you’re eligible for Medicaid, you can apply anytime. You can use Medicaid as a temporary or long-term solution, depending on whether your income increases over time.

If you’re 55 or older, you’ll want to understand how your state handles Medicaid estate recovery, as this could impact how your estate is handled after you die. The rules vary from state to state. Some states use estate recovery to recoup all costs that were incurred by Medicaid, while others limit it to only long-term care costs.

Coverage via a membership organization

Depending on the type of work you do and where you live, you may find professional associations or membership organizations that will offer you health benefits or help to arrange your enrollment. But it’s important to pay close attention to the details of the coverage you’re offered if you go this route.

Some professional associations simply facilitate members’ enrollment in ACA Marketplace plans. Others offer enrollment in various types of coverage, including ACA-compliant plans as well as non-ACA-compliant options such as short-term health insurance or discount medical programs. Others can be association health plans, which essentially function like a large-group health plan,  so they  do not have to adhere to various ACA requirements such as coverage of EHBs.

(In 2018, the U.S. Department of Labor (DOL) finalized a rule change that expanded eligibility for association health plans (AHPs) to offer coverage to more people. In late 2023, the Department of Labor published a proposal to rescind the 2018 rule,⁸ and the DOL noted in its proposed 2023 rule that they are “not aware of any AHPs that currently exist in reliance on the 2018 AHP Rule.”)

Because there is such a wide range of coverage options available through various memberships or professional associations, it’s wise to make sure you understand exactly what you’re getting. If you want a plan that includes the ACA’s consumer protections, here are some questions to ask about the coverage to help you determine whether it’s ACA-compliant. 

Short-term health insurance

Although short-term health insurance is available in most states, it’s not a substitute for ACA-compliant major medical health coverage, and is not an adequate self-employed health insurance solution.

Starting in September 2024, short-term health insurance policies will be limited to no more than four months in total duration, including any available renewals. But even before that — when policies can be sold with much longer durations in many states — short-term health insurance is meant to only be used to bridge a short gap between other policies.

So if you missed open enrollment or didn’t sign up for an ACA-compliant plan during your special enrollment period, a short-term health insurance policy can be an option while you wait for your next enrollment opportunity. But understand that these plans have caps on the amount they’ll pay in benefits, do not have to cover EHBs, and generally do not cover anything related to pre-existing medical conditions.

See if you qualify for Obamacare subsidies