Gig Workers and Health Insurance

The gig economy has grown rapidly in the past decade, and the coronavirus pandemic spurred even more movement to gig work as many Americans lost their full-time jobs. Companies in all industries supplement their staff with independent contract workers. In fact, in 40 percent of companies, a quarter of workers are either independent contractors or short-term W-2 employees. While there are many benefits to working as an independent contractor, such as setting your own schedule and being your own boss, health insurance can be more costly when you’re not purchasing it through an employer. Still, there are plenty of options for obtaining health insurance as a self-employed individual, and about 90 percent of gig workers have health insurance. Here’s what you need to know to get coverage.

Gig Workers vs Employees

Companies with 50 or more employees are required to offer health insurance to all employees under The Affordable Care Act, and many smaller businesses offer health insurance to all full-time employees, but neither are not required to offer benefits to independent contractors. Employees also have payroll taxes deducted from their paychecks, while gig workers must pay estimated taxes, which include self-employment tax. Since employers get group rates for health insurance, often contribute to premiums, and also pay a portion of the employee’s Social Security and Medicare taxes, tax costs and health insurance premiums are higher for self-employed individuals. However, that doesn’t mean there aren’t affordable options available. You should never forego health insurance, even if you have to pay more as a gig worker — insurance provides important protection for both your finances and your health.

Health Insurance Options for Gig Workers

Medicaid

If you’re a gig worker earning income below 133 percent of the poverty level, you may qualify for Medicaid, which is a joint state and federal program that provides free or low-cost health insurance coverage to low-income workers. Eligibility is based on your income in states with expanded Medicaid, and you can check if you qualify here. You can apply for Medicaid or CHIP at any time of the year.

Individual Marketplace Insurance Plans

The Affordable Care Act provides subsidies, or advance premium tax credits, for people with household incomes between 100 and 400 percent of the federal poverty level. For 2021, the income limit for a single person to receive advance premium tax credits is $51,520. However, since your modified adjusted gross income (MAGI) is used to determine your eligibility, certain expenses can be deducted, such as half your self-employment tax, your health insurance premiums, and your retirement plan contributions. Open enrollment is currently available through August 15, 2021, But you’ll qualify to enroll any time you lose coverage from another job or after another life event, such as getting married or moving. You can compare plans and apply online, or you can find a local agent, broker, or assister to help you understand your options.

Your Partner’s Employer-Sponsored Plan

If your spouse or domestic partner is employed and has access to group health coverage, their employer may extend that coverage to others in the household. This might be one of your cheapest options for healthcare coverage, especially if the employer is subsidizing a portion of the premium.

Membership Associations

Another route to getting group rates is to join a membership association. In some states, you may be able to get cheaper rates by joining the Freelancers Union or the National Association for the Self-Employed.

Short-Term Health Insurance

If you’re in-between jobs and working in the gig economy, short-term health insurance is another option to give you some coverage. Temporary health insurance typically won’t cover pre-existing conditions, mental health services, or maternity care. However, premiums are usually much lower than what you would pay for traditional medical coverage.

COBRA

If you left your full-time job and are working in the gig economy while you look for a new one, you may qualify to continue your employer-sponsored health plan through COBRA. However, if your employer was subsidizing your premiums, continuation coverage can be costly.

How Much Is Health Insurance for Gig Workers?

Your individual premium will depend on your age, income, smoking status, and state of residency. However, the average monthly benchmark premium for 2021 marketplace plans across the U.S. was $452 for a 40-year-old. Lowest-cost bronze plan premiums averaged $328 nationwide, according to Kaiser Family Foundation. However, you may be able to pay less than that if you qualify for subsidies.

Comparing Health Insurance Plans

When comparing marketplace plans, you’ll want to do your best to estimate how often you’ll need medical care, and what your total cost would be annually for each plan. This will help you get the best value. There are a few terms that are important to understand when comparing health insurance plans.

Premium

The premium is an amount you’ll pay monthly to your health insurance provider in order to maintain coverage. Since it’s not the only cost associated with your care, the lowest premium won’t always be your best option. Plans with low premiums tend to come with higher deductibles and out-of-pocket costs.

Deductibles

Your deductible is the amount you’ll pay for care before your insurance company starts covering the costs. After you’ve met your deductible, you’ll typically only pay copays or coinsurance for health services. For example, if you have a $2,000 deductible, you’ll need to cover $2,000 of your medical costs before your insurance company will start picking up the tab. Some plans also have separate deductibles for prescription medications. That said, all marketplace plans cover preventative healthcare before you meet your deductible, and many plans cover additional services prior to meeting your deductible as well.

Copays and Coinsurance

A copayment is a fixed amount you’ll contribute to a covered healthcare expense, such as doctor’s office visits and prescriptions, while coinsurance is a percentage of the covered cost.

Out-of-Pocket Maximum

Your out-of-pocket maximum reflects the maximum amount you’ll pay for healthcare services while you have a health insurance policy. Out-of-pocket costs include deductibles, copays, and coinsurance, but do not include premiums. After you’ve paid your out-of-pocket maximum, your insurance company will cover 100 percent of covered services.

Plan Type

There are several types of health insurance plans that impact which doctors you can visit. Exclusive Provider Organizations (EPOs) and Health Maintenance Organizations (HMOs) only cover certain in-network providers, except in an emergency, and typically require a referral to see a specialist. Preferred Provider Organizations (PPOs) allow you to see out-of-network doctors without a referral for an extra cost.

The Bottom Line

If you’re a gig worker looking for health insurance, you have options. In most cases, you’ll pay higher health insurance premiums than you would get with an employer-sponsored plan, but you can deduct those premiums on your tax return. And although health insurance is costly for self-employed individuals, it’s also necessary to protect your finances in the event of a health concern.