If it seems like everyone has a side hustle or works as a freelancer nowadays, it’s not your imagination. The gig economy is growing … and growing. Technology makes the 1099 lifestyle easier than ever, and many—from Gen Z to baby boomers—are drawn to the flexibility and independence it allows. However, job-based health insurance is one of the things gig workers often lack. When flying solo, gig workers have to think about their health insurance options from the individual market or short term health insurance market.
Whether you drive for Uber or craft blog content, if you don’t have access to benefits through a full-time job, a parent, or a spouse, you’ll have to find your health insurance on your own. And you’re not alone. By some estimates, independent contractors will account for 40% of the workforce by 2020 and, at its current growth rate, the majority of the U.S. workforce will be freelancers by 2027. That means more and more of us will be shifting from employer health plans to individual coverage.
Fortunately, affordable gig insurance is already easy to come by. Three of the most common health insurance options for gig workers include:
- Short term health insurance
- Affordable Care Act (ACA) plans sold through federal and state exchanges
- Private ACA plans
Which coverage you choose will largely depend on your financial situation. You’ll want to familiarize yourself with each of them.
Short Term Medical Insurance
Bankrate’s latest Side Hustle Survey found that 3 in 10 Americans with a side hustle say they need the extra income to help with basic expenses. If your gig helps you make ends meet, you probably want to trim expenses wherever possible.
Likewise, keeping costs low can also be a priority for those making a career out of gig work. After all, you need to set aside money for taxes, retirement savings, disability and life insurance, and other business expenses related to your line of work.
Buying a short term health plan can be one way to pay a lower monthly health insurance premium. Affordability is part of their appeal. On average, short term insurance premiums can be a fraction of major medical premiums—up to 50% less. You can select the deductible amount that feels most affordable to you; if you need healthcare, this is the dollar amount you’ll pay out of pocket before your benefits fully take effect.
Speaking of benefits, short term health policies typically cover healthcare costs associated with accidents and unexpected illnesses. Sometimes the media makes short term plans out to be “junk policies”; however, they are a valid option for those looking to obtain temporary coverage between ACA plans or an affordable alternative to ACA plans.
The reason short term health insurance plans often cost less than ACA plans is that they don’t include all of the 10 essential health benefits these major medical policies must include. For example, a short term policy usually includes benefits for hospitalization, emergency care, or sick visits to the doctor. However, few of them cover maternity care or preventive services. You may, however, have access to additional non-insurance benefits such as telehealth consultations, prescription drug discounts, and vision care discounts—it all depends on the plans you’re considering.
In addition to cost, gig workers may find short term plans attractive due to their flexibility and quick availability. Because most plans do not include provider networks, there are no doctor or hospital restrictions. You can apply for short term health insurance online and, if approved, begin coverage as soon as the next day. It’s available year-round, which means you don’t have to wait for an open enrollment period.
Short term plans function much like major medical plans in that you present your insurance card when you seek care, your provider files the claim, your policy covers its share, and then you are billed for the amount you owe.
Gig workers with relatively few medical expenses and who don’t qualify for ACA subsidies may find short term health insurance to be a good fit. Additionally, short term plans can be a temporary option if you are starting a full-time job with benefits and need temporary coverage until your employer waiting period ends.
This type of insurance may not be the right option for everyone in the gig economy. Availability varies by state, you can be denied coverage based on your health history and, as mentioned above, short term plans don’t include all of 10 essential health benefits.
ACA Health Insurance From An Exchange
If a short term plan won’t meet your healthcare needs or isn’t available to you, you’ll want to consider major medical insurance. All major medical plans, whether sold on or away from these exchanges, must meet all of the Affordable Care Act’s requirements for minimum essential coverage (e.g., all of the 10 essential health benefits, guaranteed issue coverage, and the inability to charge you more based on your health history).
Access to subsidies is the key difference between on-exchange and off-exchange ACA plans. If you enroll through HealthCare.gov or a state exchange, you may qualify for a premium tax credit or cost-sharing reduction. These subsidies are only available through the federal and state exchanges. Eligibility is based on income. If you qualify, these subsidies can lower your monthly premiums and out-of-pocket healthcare expenses (e.g., deductible, coinsurance, copay).
Gig workers may find exchange-based ACA plans to be a good fit if they qualify for subsidies that help reduce what they pay for health insurance and healthcare, have pre-existing conditions that may need ongoing care, or need long-term coverage that includes all 10 essential health benefits.
ACA Plans In The Private Market
A growing number of freelancers can be categorized as high-earning—the number who make $75,000 or more annually increased 15 percentage points from 2014 to 2018. Depending on your household size, your income could make you ineligible for ACA subsidies.
You can still enroll in major medical coverage through an ACA exchange; however, you may also explore your options in the private market. Find out what plans are available directly from an insurance carrier and compare the costs to see which is more affordable to you—a plan sold through an exchange or one sold in the private market.
Compare for Cost
No matter what health insurance you choose, you will likely have a few different plan options. Take the time to compare. Cost is a good place to start, but you’ll want to look at the big picture. Consider the following questions:
- What is the plan premium—the amount you pay each month (or year) for coverage?
- Are you eligible for a premium tax credit? How does that impact what you’ll pay for an ACA plan compared with a short term plan?
- What is the annual plan deductible—the amount must you pay out of pocket for healthcare before your benefits kick in?
- What is the out-of-pocket maximum—the limit on what you will be expected to pay out of pocket for the year?
Typically, a higher deductible results in a lower premium and vice versa. You’ll want to strike a balance between what you can afford each month and what you can swing if you need to use your insurance benefits.
Likewise, pay attention to the coinsurance and copayment amounts associated with the plans you’re considering. The coinsurance percentage is how you and the insurance policy split the cost of care. A copay is an amount you’re expected to pay upfront for services such as doctor appointments, prescriptions, or visits to the ER.
Consider These Factors, Too
We tend to place a lot of emphasis on cost because it determines which coverage we can afford. However, there are some additional considerations for gig workers choosing a health insurance plan.
Do you have medical conditions that may flare up and require treatment, or do you have ongoing needs such as prescription medication or sessions with a therapist? Be sure the plan you choose will provide adequate coverage. If you are considering short term medical insurance, you will need to apply to determine whether or not you qualify.
If you have an established relationship with a doctor or prefer a nearby hospital, then you need to be sure these healthcare providers are in your plan network. Most short term medical policies do not have network requirements, which means you can visit your preferred provider as long as they accept short term health insurance (most do). When buying an ACA plan, be sure to check the provider directory before you enroll—networks and participating providers can change.
Timing and availability
If you need health insurance outside of the annual open enrollment period for major medical plans, then you’ll need to qualify for special enrollment. If you want to enroll in an ACA plan and you don’t qualify for special enrollment, then you may need to apply for a short term plan to get you by until open enrollment.
Likewise, you may be keeping your side gig but starting a full-time job with benefits. There is usually an employee waiting period of up to 90 days, and a short term medical plan can provide benefits until your job-based coverage takes effect. Again, keep in mind that short term plans are not available in every state, and policy length limits vary among states where they are available.
Health Insurance And Then Some
When navigating the gig economy, whether for primary or secondary income, you have plenty of logistics to consider. Prioritize securing health insurance, whether it’s a short term or major medical plan, so you have healthcare benefits when you need them. If you need help understanding your options or deciding what’s best, a health insurance professional can help.
And, finally, while the freedom of pursuing a non-traditional career path can be highly rewarding, you will forego the type of traditional benefits package offered through an employer. That means, you won’t want to stop at health insurance; you’ll probably want to seek additional benefits such as retirement savings, disability insurance, and life insurance. As the workforce shifts, we will no doubt see new companies form to meet these additional benefits needs of 1099 workers.