How to Save on Health Insurance as a Freelancer in the Trump Era
The bill was called the Tax Cuts and Jobs Act, but the sweeping tax reform that passed at the end of 2017 contained a key detail that had nothing to do with cutting taxes or increasing jobs: It ended the Affordable Care Act’s (ACA) individual mandate, which required most Americans to buy health insurance. Technically, the mandate wasn’t actually repealed, but the penalty for not having health insurance was brought to zero, which has the same effect.
While that may sound like a money saver—the 2017 penalty for not having health insurance was $695 or 2.5% of your household income, whichever is higher—it will probably cost you even more in the long run. Trump's early moves to gut Obamacare had already contributed to higher monthly premiums in 2018 from insurers in the health exchanges. Now, with the individual mandate effectively gone, fewer healthy people will participate in the exchanges. And that, in turn, raises rates for everyone else who stays in them, since insurers will have fewer healthy people in their pools to offset the costs of insuring those who need more medical care.
Some of the worst hit by the change? Freelancers. That's because if you work for a company with more than a few workers, chances are your employer provides insurance, which is often highly subsidized. The average individual in a company-sponsored plan paid just $100 a month in 2017, according to a Kaiser Family Foundation report. Compare that to the typical individual cost on a marketplace plan, which averaged around $393 a month before subsidies, according to an eHealth survey, and it's pretty easy to see who's getting the short end of the stick.
Of course, if you are disabled or your income is at or below the poverty level, you can get Medicaid, which is free. But freelancers earning a living wage face a tough choice: either stomach the higher monthly premiums or forego insurance all together, which can cost you tens of thousands of dollars or more if you have an unexpected medical emergency.
How did we get here?
The ACA (commonly known as Obamacare) created the government-sponsored Health Insurance Marketplace, which opened in 2013. On the marketplace, which is broken down into submarkets for each state, those without medical coverage from their employer or spouse can purchase health insurance plans. People making less than 400% of the Federal Poverty Threshold—$48,240 for a single-person household in 2018—are eligible for a sliding discount on the plans they buy, adjusted based on how much money they make.
But for this arrangement to work, insurance companies need healthy people who rarely use their policies to buy insurance, to subsidize the medical costs of those with pre-existing conditions or other health issues. With a sufficient mix of healthy and sick people to balance the cost of care, insurers can provide relatively even premium prices to people of all health levels.
The individual mandate was the ACA’s guarantee to insurers that they’d receive that mix. It required most individuals not covered by their employers to buy an eligible insurance policy or face a tax penalty at the end of the year. Under the new tax bill, that mandate is effectively gone, meaning there’s nothing to prevent healthy people from opting out of buying policies from marketplace insurers.
The grim math behind rising health costs
First, let’s be clear—we’re only talking about the 18 million or so people who buy health insurance for themselves directly. These individuals are typically freelancers, run their own small business or classify themselves as solo practitioners (think about an independent real estate agent or personal trainer).
Of that 18 million, about half or nine million people purchased a plan on the ACA exchange during this past open enrollment period, with premiums that are an average of 38 percent higher than they were in 2017. It's important to note, however, that 85% of people enrolled in the exchanges qualified for subsidies that can reduce monthly payments by hundreds of dollars.
To figure out what the higher premiums actually mean for a freelancer like me, I headed over to the Healthcare.gov to run some numbers. Using my own personal information—a 29-year-old male, nonsmoker, the only member of my household in Fairfax, Virginia—and the mean U.S. freelancer income of $30,737 or about $2,561 per month—the average cost of a silver-tier plan was $301 after the tax credit.
Tax credits are the saving grace of anyone freaked out by the higher premiums. Anyone who makes up to 400 percent of the federal poverty level is eligible for subsidized health insurance. And the more you make, the more you pay. (If you make less than around $16,750 or so, depending on your state, you can qualify for Medicaid, which is free.) Silver plans are considered “middle of the road,” in terms of cost and coverage, sitting between cheaper, bare-bones bronze plans and more comprehensive gold plans.
To keep the comparisons simple, let’s say 30 percent of the $2,561 I make as an average-earning freelancer goes towards taxes and business expenses—not precise, but not an unrealistic estimate either, based on conventional wisdom. I’m now taking home $1,792.70 per month, and devoting nearly 17 percent of that take-home pay to a mid-tier healthcare plan.
That’s manageable, but still on the expensive side. Adjusting my income to $40,000 pre-tax makes the ratio worse—I’d have to spend $408 for an average Silver plan, or nearly 17.5 percent more. And if you’re a full-time freelancer making around $49,000, you’re in the worst possible position: just over the threshold of 400% of the federal poverty level to receive a government subsidy. You’ll spend an average of $490 per month for a mid-tier plan.
Keep in mind that your actual costs may vary significantly depending on where you live, whether or not you smoke and how old you are, among other factors. I live in a high-income suburb outside of Washington, DC, so the relative costs between income levels are more important than the actual numbers. To calculate your own costs, try this calculator from Kaiser.
How much more expensive will health insurance get?
But now that the individual mandate is gone, here’s the real kicker: These costs are only going to go up. The Congressional Budget Office (CBO) estimates that in the next decade, premiums for plans on the individual marketplace will increase 10 percent most years, as a result of the individual mandate repeal. Based on the examples and numbers above, if all else remains the same, that freelancer earning around $50,000 per year is going to see a $49 increase in their monthly premium next year, $53.90 the year after that, and so forth.
The CBO’s projections are done with the assumption that no other legal changes in the next decade will cause premiums to rise, which we shouldn’t expect to be the case: Trump’s decision to end subsidy reimbursement, for example, will compound the increasing cost of healthcare. There’s a lot of variables involved here, and healthcare laws are changing constantly.
On the bright side, a new survey of more than 2,500 people enrolled in the health exchanges found that despite Republican-led efforts to dismantle Obamacare, most people's premiums in 2018 were actually the same or lower than they were in 2017. How is that even possible, when premiums are going up overall? "This may be because many marketplace enrollees receive financial assistance through premium tax credits to help cover the cost of their premiums, which protects them from being directly impacted by premium increases," according to the Kaiser Family Foundation poll.
How to save money on the health marketplaces
There are a few tricks to lowering your costs on the marketplaces. The best one I know of is to reduce your modified adjusted gross income, the number used to calculate your tax credit, by putting as much money as you can in a tax-deferred account like an IRA. The great thing about IRAs is that, unlike 401(k)s, you don't need an employer to enroll. Instead you can just sign up for one online at places like Vanguard or Fidelity. You can lower your taxable income by as much as $5,500 with this simple move, which in turn could increase your subsidy.
You can also lower your reported income by subtracting student loan interest, alimony payments and classroom expenses.
Next, make sure you are choosing the least expensive plan available to you by using the comparison tools on your state's health exchange. Silver plans have traditionally been the best bets, but some gold plans are actually cheaper in 2018, so make sure you look carefully.
Once you've chosen a plan, always make sure to see a doctor in network to avoid any unexpected charges. Before you go in for your appointment, find out from your insurer which services are included in your coverage and which will cost you money out of pocket. For example, many health plans do not include coverage for urgent care centers, which can cost over $100 a pop.
After each visit, review your bills with a fine-toothed comb to make sure you aren't being charged for services you never received. Call your doctor to dispute any charges you don't understand. If you ask politely and explain your situation, you may be able to lower your bill, simply because you asked.
Lastly, look for other money-saving moves like ordering prescriptions online, which can be much cheaper than filling them at a retail pharmacy.
Consider alternative health plans
If the ACA math still doesn't work, for you, consider looking for a plan outside the marketplace. While you can simply go uninsured, that's a bad idea for a multitude of reasons. You’re still on the hook for penalty payments if you are uninsured this year, or were for any tax years since 2015. More importantly, your medical bills will skyrocket—a basic MRI will run you about $2,611. In the event of a catastrophic injury, you could be financially ruined. In fact, half of all uninsured patients treated for trauma between 2007 and 2011 left the hospital with medical bills that amounted to over two-thirds of their annual income, according to a study in the medical journal Annals of Surgery.
You could choose a short-term healthcare plan. These plans can typically be purchased outside of open enrollment periods, and are generally less expensive than plans on the marketplace. However, short-term insurance isn't required to provide the 10 essential health benefits mandated by Obamacare (like prescription drug coverage and hospitalization), and typically comes with high deductibles.
Other freelancers are relying on off-market plans to get by. “I purchased [an individual] plan from one of the state’s largest healthcare systems,” said Elizabeth Hanes, freelance writer and RN-BSN. “[But] I have found it very frustrating. In my state [New Mexico], I have few policy options. Because I earn too much to qualify for a subsidy, the available plans are very expensive, despite the fact I am a healthy individual with a history of low healthcare usage.” If you want to buy a private plan, you can shop for one on exchanges such as exchanges such as eHealth, HealthInsurance.com, and HealthPlanOne .
Just remember that not all off-market plans meet the ACA’s minimum coverage requirement. Healthcare.gov states that “most health plans sold outside Open Enrollment don’t count as qualifying health coverage.”
Yet another option is to join a healthcare sharing ministry, such as HealthShare or Samaritan Ministries. "They consist of many individuals, both healthy and unhealthy, who all pay a set fee each month to cover the health expenses of the entire group. However, these groups may not pay for all medical expenses and may not cover expenses related to pre-existing conditions,” said Kasey Fuqua, a self-employed medical writer. You’ll also be required to sign a statement declaring your Christian faith, and since these groups don’t technically qualify as insurance, they aren’t required to accept everyone the way marketplace plans are.
Finally, if you think you have a good enough reason to not have health coverage, you can apply for what the government calls a hardship exemption. For 2017, reasons for hardship exemption include the death of a family member, an eviction, domestic violence, and bankruptcy. But you can’t claim this exemption automatically: you’ll have to fill out a form and submit it to the Health Insurance Marketplace. Even then, the exemption only applies for the months in which you experienced the hardship, with a maximum exemption of one year.
The bottom line
Unless you’re making enough money to not have to sweat paying $300-500+ per month for healthcare, the brutal truth for today’s self-employed American workers is that there’s no easy answer for medical insurance. You have to choose between high cost, mediocre plans on the marketplace or bare bones outside plans that may exclude coverage for real emergencies.
Still, the healthcare experts I spoke to agreed that some coverage is better than none at all. “Even if it is not the best coverage, I am so thankful for the Affordable Care Act and the individual marketplace,” said Fuqua. “In 2017, my husband experienced a detached retina and needed emergency eye surgery. Our insurance saved us more than $9,000 for his surgery and related care.”
Legislative action could change circumstances for everyone, but in the current climate of vicious partisanship, it’s tough to bank on the government coming to the rescue—unless the constituency gives them no other choice. To that end, you should pressure your congressional representatives to work together to fix our broken healthcare system. Advocacy groups like Indivisible and Families USA have plenty of resources to help you take action.
Update: This story has been updated with data from Kaiser Health Tracking poll from March 2018.