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How do the self-employed access health insurance through the health insurance exchanges? Does the subsidy apply to me?

Q: I’m a self-employed person with no employees.  How do I access health insurance through the health insurance exchanges?  Does the subsidy apply to me?

A: Yes. You’re exactly the sort of person the ACA’s exchanges and subsidies were designed to help, since you don’t have access to an employer-sponsored health plan.

No longer reliant on COBRA health insurance coverage, entrepreneurs can now leave an employer and its group coverage to strike out on their own and start a new business with affordable insurance. With the Affordable Care Act, those with low to mid-range incomes can qualify for premium subsidies – or even Medicaid in some states – to help pay for health coverage as they start a new business.

To qualify for a health insurance subsidy, your modified adjusted gross income (MAGI) must be no more than 400 percent of the federal poverty level. For 2017 coverage, that’s $47,520 for a single individual and $97,200 for a family of four (2016 poverty level guidelines will be used for 2017 coverage). Not everyone with incomes under that threshold ends up getting a subsidy though though; it depends on how the price of the second-lowest cost silver plan compares with the applicant’s income.

On the lower end, subsidy eligibility starts at 100 percent of the poverty level in the 19 states that have not yet expanded Medicaid, and at 138 percent of the poverty level in the 31 states and DC where Medicaid has been expanded (Louisiana‘s Medicaid expansion takes effect July 1, 2016; we’re counting them among the 31 states where Medicaid has been expanded). In the states that have expanded Medicaid, Medicaid is available for people with incomes up to 138 percent of the poverty level. In states where Medicaid has not been expanded, there’s unfortunately a coverage gap, and almost three million low-income residents in those states have no realistic access to health insurance.

Business owners can also make pre-tax or tax-deductible contributions to a solo 401(k), a SEP-IRA, or a Traditional IRA. And if they enroll in an HSA-qualified high deductible health plan, they can also contribut pre-tax money to a health savings account. All of these types of contributions serve to reduce your Modified Adjusted Gross Income (MAGI), which is used to calculate subsidy-eligibility in the exchanges. So if your income is a little too high to qualify for subsidies, you might find that contributing to an HSA (assuming you have an HSA-qualified health plan) and/or an IRA could reduce your income to a level that’s subsidy-eligible. Be sure to talk with a tax advisor if you have questions about your specific situation.

Insurers no longer deny coverage to individuals because of pre-existing conditions or charge them more because of their medical history. The fact that health insurance in the individual market is now guaranteed-issue means that people no longer have to be tied to their existing jobs for fear of not being able to get coverage elsewhere. Coverage in the individual market is only available during open enrollment or during special enrollment periods triggered by qualifying events. But loss of other coverage is a qualifying event, so if you’re leaving a job – and losing job-based health insurance – to become self-employed, you’ll have a special enrollment period during which you can select a new plan in the individual market. If you think there’s a chance you might qualify for premium subsidies, be sure to shop in the exchange. Plan are available outside the exchanges too, but without subsidies.

Read more FAQs about health insurance exchanges and self-employed health insurance.

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