A Simple Guide To 2021 Open Enrollment For The Self-Employed

Still putting off open enrollment? Don’t worry —  if you’re self-employed and group coverage isn’t available, you still have until December 15 to choose a health insurance plan for 2021.

But don’t wait much longer. After the deadline passes, you will be ineligible for coverage in 2021 unless you experience a qualifying life event, such as having a baby, getting married, or moving to a new state.

This simple guide breaks down the do’s and don’ts of open enrollment for the self-employed. 

Don’t Skip Health Insurance

While it may seem obvious to some, it’s worth reiterating for the self-employed. Many independent workers — particularly those who are young, single, and in good health — forgo buying their own health insurance. This is especially true since the updated Affordable Care Act removed the mandate to have coverage.

But one of the countless lessons coming out of this year’s COVID-19 pandemic is the need for all individuals to have health insurance. 

Health insurance helps pay some or all of the cost of doctor visits, prescription drugs, hospital stays, and surgical procedures. Premiums you pay for health insurance are a tax deductible expense.

Self-employed workers can find health insurance options through the Affordable Care Act, provided they don’t have employees, using the Individual Health Insurance Marketplace at HealthCare.gov. What you pay for health insurance through the marketplace is based largely on your income, so you should be able to find an affordable plan for your budget.

Do Review Your 2020 Health Care Spending To Estimate Your 2021 Needs

To make the best decision for next year, you need to do a deep dive into what you spent on health insurance for 2020. 

Don’t just look at what you spent in premium. Also consider what your deductible was and when — or if — you reached it. Then tally all of your out-of-pocket costs, such as copays and coinsurance for physician visits and prescription drug expenses. Determine if you paid full price for certain treatments without any insurance help. 

For next year, consider:

• Whether you or a family member have been recently diagnosed with a medical condition.
• Whether you will be adding to your family or attempting to in the next year.

As your family changes, your health insurance needs typically do, too.

Do Review The Network Types Available

When you enroll in health insurance, you have several options on the plan network you can choose. The type of network you choose will dictate the type of access your health plan offers to doctors, specialists, hospitals, and more. Here is a brief overview of the main types of networks:

• Health Maintenance Organization (HMO) plans require you to select a primary care physician (PCP). Your PCP must refer you to specialists or diagnostic services.
• Preferred Provider Organizations (PPO) plans do not require referrals. You will need to choose care providers within the plan’s preferred network. Providers outside the network will only be partially covered.
• Exclusive Provider Organization (EPO) plans are similar to PPO plans. The main difference is that care provided by an out-of-network physician or specialist will not be covered at all.
• Point of Service (POS) plans require you to select a PCP for referrals. Out-of-network care will be partially covered.

As you review what is and isn’t available to you, make sure to ask questions and conduct your own research. Due diligence is key to finding the best plan for your needs.

Don’t Overestimate Your 2021 Income

Health insurance purchased through HealthCare.gov is subsidized by the federal government. The amount of the subsidy is based on your income. The less you earn, the less you will pay for insurance. 

To determine your premium amount, you have to estimate what you’ll earn in 2021. It can be tricky for self-employed workers to estimate a full year’s worth of income. After all, how do you predict how many rideshare clients you’ll have or how many freelance gigs you’ll complete?

It’s important that your income estimate is not just estimated business revenue. If you’re self-employed, you should use your modified adjusted gross income (MAGI), which is essentially the profit from your business after expenses. 

For example, if you earn $50,000 in revenue but have $10,000 in expenses (advertising, travel, office supplies, etc.), then your MAGI would be $40,000.

But you can reduce your income estimate even more by taking personal deductions, such as IRA contributions and student loan interest. If you plan to take personal deductions next, figure those into your income estimate.

Don’t Base Your Decision On Price Alone

It’s tempting to choose the health plans with the lowest premium, but they don’t meet every person’s needs. Plans that charge the lowest premium typically have the highest deductibles and out-of-pocket costs. 

Before making a decision, make sure that you:

• Consider how much health coverage you will likely need in 2021.
• Fully understand what the plan does and doesn’t cover.

Of course, the price needs to work for you, too. But don’t let a low monthly rate stop you from performing your due diligence.

Don’t Just Default To Your 2020Pplan

Health insurance plans available through HealthCare.gov are organized by tiers: bronze, silver, gold, and platinum. Bronze and silver plans are less expensive but provide less coverage. Gold and platinum plans are more expensive but provide more coverage. Easy enough, right?

If you bought one of the lower-priced plans for 2020 but needed a lot of coverage this year, you may want to opt for one of the higher premium plans. Though you may pay more upfront, you could save in the long run if you require several doctor visits, prescriptions, and treatments in 2021.

On the other hand, if you bought an expensive plan for 2020 and hardly used it, you may have overpaid. You should therefore consider a lower premium plan for 2021.

Do Contribute To An HSA If You Enroll In A HDHP

If you want to save on your health insurance premium, you can choose a high-deductible health plan (HDHP). These plans charge less in premium than standard insurance plans and are often used by individuals and families who don’t have regular medical needs and just want something to cover major illnesses and injuries.

The major downside of an HDHP is that it typically doesn’t cover any medical expenses until you have reached the annual deductible, which is, as the name implies, high. (Some plans will pay for preventative care without requiring the deductible to be met.) 

For 2021, the IRS defines an HDHP as any plan with a deductible of at least $1,400 for an individual or $2,800 for a family. An HDHP’s total yearly out-of-pocket expenses (including deductibles, copayments, and coinsurance) can’t be more than $7,000 for an individual or $14,000 for a family. (This limit doesn't apply to out-of-network services.)

To help individuals and families pay for expenses before they reach the deductible, health savings accounts (HSAs) are available.

An HSA lets you set aside money on a pre-tax basis to pay for qualified medical expenses. You can only do this if you have an HDHP and it’s the only health insurance you have.

For 2020, you can contribute up to $3,600 for self-only coverage and up to $7,100 for family coverage into an HSA. The account’s funds roll over year to year if you don't spend them. An HSA may earn interest or other earnings, which are not taxable.

Don’t Forget To Fill The Gaps

Even with a respectable health plan and an ample HSA, the costs associated with treating serious illnesses can be financially devastating. A critical illness insurance policy is an affordable way to fill in gaps. If you are diagnosed with cancer, heart attack, stroke, or another critical illness

Open enrollment is also a great time to review your life insurance and disability insurance needs. Self-employed professionals don’t have the luxury of opting in to employer-sponsored coverage, which makes the purchasing of individual plans all the more important. Together, life and disability insurance can fortify your financial safety net for you and your family should the unexpected happen.

In a year filled with uncertainty and distractions, make sure you afford yourself enough time to evaluate all of your coverage needs before open enrollment ends on December 15. Because who knows what 2021 will bring.

Jack Wolstenholm is the head of content at Breeze, a digital-first insurance company that offers simple, affordable income protection for working Americans.