How To Guide: Group health insurance for self-employed

Looking for group health insurance for self-employed? If you own your own business but have no employees, you may not even realize the options available to you when it comes to group health insurance for the self-employed. These days, there are more options than ever and some are customizable, making it easy to find exactly what you’re looking for! Read on for an affordable self-employed health insurance option.

Did you know that 99.9% of businesses in the US are small businesses, and 8 out of 10 of those have no employees? If this sounds familiar to you, you’re probably self-employed. And kuddos to you! That is no small feat.

In addition to running your business, you’re probably asking yourself, “Is there affordable health insurance for self-employed?” or “Are there group health insurance options for self-employed individuals?” or “How do I solve for health benefits for small business?”

These are great questions.

The good news is you’ve got options. 

Let’s jump in.

Insurance for self-employed: what’s best?

As a self-employed individual with no employees, you likely fall under the categories of either a sole proprietor or a single-member LLC. However, navigating the world of health insurance can be a bit tricky as there is no separation between you and your business in the eyes of the IRS. This means that even if you work full-time for your company, you are not considered an employee. It’s important to keep in mind that this applies to both Sole Proprietorships and Single-Member LLCs that did not elect corporate taxation.

Here are some budget-friendly, tax advantaged options for health benefits:

Purchase an individual health plan, either off-exchange or from the ACA exchanges. (Our individual health insurance platform can help you shop).  
Consider an affordable alternative to traditional insurance like a faith-based sharing plan. Read our CEO’s review of Medi-share here. 
Get on your spouse’s employer-sponsored health plan, if available. 
Purchase a group health insurance plan for yourself (in certain states).
Hire your spouse as an employee and set up a health reimbursement arrangement. We know, this sounds crazy. But hear us out. 

Check out our brand new small business health insurance guide to deep dive on these ideas. 

Is there group health insurance for self-employed people?

According to Kaiser Family Foundation, the following states define self employed as “groups of one” and require insurers to guarantee them coverage in the small group market.

Colorado
Connecticut
Delaware
Florida
Hawaii
Iowa
Louisiana
Maine
Massachusetts
Mississippi
New Hampshire
New York
North Carolina
Rhode Island
Vermont
Washington

What are the options for group health insurance for the self-employed?

Small group insurance: Small-group insurance has been the primary option for many small employers who are looking to offer health benefits. There are lots of options out there; you can choose between managed care (HMO, PPO, and POS), indemnity fee-for-service, and high-deductible health plans.

You can buy small-group plans directly from an insurance company, via a broker or private exchange, or from their state’s SHOP Exchange. You can sign up for this anytime, not just during open enrollment. 

While these plans are well known, tax-free, and solid product options, they are also expensive, one-size-fits-all. They have unpredictable premium increases year over year,  and participation rate requirements. 

But remember, only certain states guarantee self-employed individuals the ability to elect a group plan.

Many small business owners like you are opting for the new reimbursement model instead which boasts many benefits, helps with budget control, and is more predictable. 

Health Reimbursement Arrangements

A health reimbursement arrangement is an affordable, tax-advantaged alternative to traditional insurance where employers reimburse their employees for individual insurance premiums and medical expenses (if applicable) on a pre-tax basis. 

The use of new reimbursement models like QSEHRA and ICHRA put the employer’s reimbursements on nearly the same tax playing field as traditional small group plans, but without all the hassles and requirements. Before, a big advantage for group plans was that they were deductible expenses for employers and were taken out of employee paychecks on a pre-tax basis.

Before we get into how to go about this, let’s talk about the two main types of HRAs.

QSEHRA:  The Qualified Small Employer Health Reimbursement Arrangement, or QSEHRA, allows small employers to set aside a fixed amount of money each month that employees can use to purchase individual health insurance or use on medical expenses, tax-free. This means employers get to offer benefits in a tax-efficient manner without the hassle or headache of administering a traditional group plan and employees can choose the plan they want. Reimbursement amounts can vary based on age and family size. 

ICHRA:  The Individual Coverage Health Reimbursement Arrangement has all the same benefits as QSEHRA, but with no maximum contribution limits and no company size limit. In addition to the flexibility of varying rates based on age and family size like QSEHRA, the hallmark feature of an ICHRA plan is that benefits can be scaled across different ICHRA classes of employees. An ICHRA can also be integrated with a group plan, which is another distinction. 

As a self-employed individual you generally are not eligible for an HRA because you’re not an employee, your spouse can be an employee and eligible for an HRA and health plan that covers you.

Here’s the HRA strategy if you’re self-employed with no employees and you’re married:

Hire your spouse as a W-2 employee:

Your spouse’s salary can just be the amount you want to reimburse through the HRA, but it must be a fair wage for what they are doing (i.e., you can’t reimburse $100k through an HRA if your spouse is not actually doing that much work)
It’s a good idea to have an employment contract and time sheet for record-keeping purposes

Make your spouse the primary member on your family health plan
Cover yourself as a dependent on your spouse’s major medical health plan
Set up a One-Person 105 HRA, ICHRA, or QSEHRA for your spouse:

Choose the One-Person 105 option if you have significant medical expenses or have other employees that are only excludable under the One-Person 105 rules (see Pro-Tip in the One-Person 105 HRA section above); the One-Person 105 HRA meets the HRA discrimination requirements because your spouse is the only eligible employee
Choose QSEHRA if you have health expenses that are less than the QSEHRA reimbursement limit or have other employees that are excludable under the QSEHRA regulations so that your spouse is the only eligible employee for the QSEHRA (see the Reimbursement Rules section of our QSEHRA Guide)
Choose an ICHRA if the reimbursement limits of QSEHRA are too restricting. There is no limits on ICHRA contributions. 

Save all your medical bills and records and have your company reimburse the bills each month from a separate account

This strategy for employee insurance for small business only works if you don’t hire any other W-2 employees that would be eligible for either ICHRA, QSEHRA or a One-Person 105 HRA (make sure to look at those rules closely) and assumes that you and your spouse don’t own any other businesses that have employees (common ownership rules would likely apply and the plan would fail to meet Section 105 requirements). You’ll need to keep good records, too. 

Next Steps

Hopefully we’ve been able to shed some light on your options for healthcare for business owners. We have a ton of excellent resources available to you, including FAQ pages for the ICHRA and QSEHRA and many informational posts available on our blog. You can also chat with one of our team of experts anytime!

This post was originally published in 2020 and has been updated in 2023 with the latest regulatory and policy updates.