I couldn’t find a good source that had info about health insurance for self-employed people from a financial perspective. There are lots of articles out there that compare different health insurance options from a benefits standpoint but there’s more to health insurance than just deductibles and copays. I even asked a question in a finance Facebook group I’m in that has tens of thousands of members and I got angry commenters telling me to get “real insurance.”

If you’re seasoned in all things personal finance, then the info I’ll provide here is probably not new to you. If, on the other hand, you don’t know much about how health insurance and your financial future intersect, then you’re in for a surprise. A lot of what I’m going to share is counter-intuitive so please read with an open mind.

I recently became self-employed and had to find my own health insurance. Health coverage is probably the biggest concern for people making the switch from a salaried job to self-employment, and understandably so. When I announced that I was starting a business, it was the most common question I got.

An HSA is the best investment tool available to you (yes really)

I think a good starting point for this blog is with HSAs (short for health savings account). You’ll understand why as we go on. Before we get into choosing actual health insurance, it’s crucial that you understand what an HSA is and it’s unique benefits.

HSA is short for health savings account and I really wish it was called something else because the name is misleading. Most people have no idea that what appears to be an expense account is actually a powerful investment tool. In actuality, it’s a retirement account and you can think of it as similar to a Roth IRA but with even more tax advantages. So let’s just think of an HSA as a bonus retirement account from now on.

You can do your own research on HSAs (and I encourage you to do so) but here’s a quick rundown.

HSAs are very unique in that they have a TRIPLE tax benefit:

• Contributions lower your taxable income,
• the money grows tax-free,
• and you also withdraw it tax-free.

401k and IRA accounts only have two out of those three benefits. An HSA is the ONLY account that exists with this triple tax benefit.

How do you qualify to open an HSA?

The only qualification to open an HSA is to have a high deductible healthcare plan. For 2022, the IRS defines a high-deductible health plan as any plan with a deductible of at least $1,400 for an individual or $2,800 for a family. A $1,400 deductible isn’t even that high, in my opinion. The insurance I chose has a $5,000 deductible.  

Opening an HSA is very easy and takes just a few minutes. I use Fidelity. There are many other options – just make sure you choose one that offers index fund investing and low fees. 

Because of the tax advantages, the HSA contribution limits are relatively small. For 2023, the limit is $3,850 for self-only coverage and $7,750 for family coverage. Those 55 and older can contribute an additional $1,000 as a catch-up contribution. However, the limit seems to increase a little bit each year.

I recommend maxing out the HSA limit if you can before putting money into any other investment accounts. 

One of the biggest costs of retirement is medical care. A 65-year-old couple retiring in 2022 will spend an average $315,000 in health-care and medical expenses in their retirement, according to Fidelity Investments. Wild.  

I said before that you can use an HSA as a retirement account. Here’s how…

You have the option to use your HSA to pay for health-related expenses that come up now or in the near future but there’s another option that most people don’t understand. Instead of using the funds now, you can save your receipts from expenses and then “cash them in” at a later date (which could be 30 years from now). The longer you wait to basically reimburse yourself, the longer your investments will have to grow.

All sorts of expenses qualify to be paid from your HSA. Everything from dental bills and prescription glasses to tampons, massages, and supplements. Check out this comprehensive list of HSA-qualified expenses. So you can imagine that if you save the receipts from all of these expenses, it will really add up over the years.

You can actually have multiple HSA accounts as long as you don’t go over the total contribution limit. I used to have two accounts – one was just a checking account that didn’t have any investing options and I used that for small expenses like going to the dentist. But the best option is to have one investment account that you don’t touch until retirement.

*Note that HSAs are not the same as FSAs. FSAs are less flexible and are owned by an employer. With an FSA, you have to use the money in the account or lose it. An HSA is totally different and can be set up even if you’re self-employed.

Now that you know how to use an HSA to your financial advantage, you may want to base your choice of health insurance on the ability to open one.

Choosing a high deductible plan

As long as your health insurance has a deductible of at least $1,400, then you qualify to open an HSA. So it’s important to choose a “high deducible” plan. Another advantage of a higher deductible is that your premiums will be lower. As long as you’re aware of the deductible amount and you’re a good saver, then there’s no reason why you shouldn’t choose a higher deductible. I’m a good saver so I strongly believe this is the right choice but you should weigh all your options and do your own research. I would never tell you to make a decision after reading one person’s opinion.

Additionally, most of my audience skews younger so if you are nearing retirement age, then the advice in this post may not apply to you.

If your employer offers you a choice in insurance, I would choose the one with the highest deductible. If they don’t offer a high deductible plan, then it doesn’t hurt to ask if they would look into adding one. It will probably save them money too so that’s a win-win.

Another option – healthsharing

I like to weigh the cost/benefits of all the options available. During my research, I learned more about health care sharing (also called health sharing, health care sharing ministries (HCSM), and similar). I was already aware of this option but didn’t know many details.

Healthcare sharing is an alternative to traditional health insurance. Health care sharing ministries (HCSMs) are membership groups whose members share religious or ethical beliefs and pay monthly dues that are, in turn, used to pay the medical costs for other members. Essentially, members make monthly payments similar to premiums, and those funds are used to pay medical expenses for others in the ministry. I stole that definition from Investopedia since it sums it up better than I can. Disclaimer: HCSMs are controversial and you can read the article hyperlinked above to get a different perspective.

Why choose a healthshare?

The big advantage of healthshares is that they are a lot less expensive than regular insurance. If you add up the savings over a year, it could be thousands of dollars that you’re able to save.

Again, if you’re younger and healthy then I think this could be a really great option. Most HCSMs are Christian but I found one for Jewish people: United Refuah HealthShare. I went through the steps to enroll in United Refuah and read through the 50+ page membership details (and you should do the same before signing up).

In some ways, it actually provided better coverage than traditional insurance. For example, they seem to cover a lot more when it comes to pregnancy. As with anything, there are some drawbacks. For example, if you become pregnant while unmarried, then you get no reimbursement. It also takes a little extra effort to get reimbursed. But overall it seemed like a really great option for only $200/month. There are additional charges if you’re older or have pre-existing conditions.

Ultimately, I decided to go with traditional insurance and NOT a healthshare. There were two reasons for my decision…

Disadvantages of heathshares

A disadvantage of using a healthshare is that it’s not technically insurance (dumb but true). Because it’s not insurance, you don’t qualify to open an HSA and the cost of the healthshare is NOT tax deductible. Now, even with these two disadvantages, a healthshare still might still make the most financial sense for you. If I was 10 years older, then the cost of the healthshare probably would have made more financial sense.

In addition, I read an article that said you could be a healthshare member AND also have traditional insurance that is very high deducible, bare minimum coverage. That way, you are still technically “insured” and can utilize an HSA. That would make more sense for an older person. If I combined the cost of healthshare with insurance, it would be more expensive than just regular insurance.

Again, this blog post is not about weighing the actual coverage benefits in traditional health insurance vs. healthsharing. You can find those elsewhere and make that decision on your own as it’s dependent on your individual circumstances. To be honest, I’m young and generally healthy so I’m not that concerned about the actual benefits. I’m also a good saver so I’m only looking for my insurance to provide coverage in the case of catastrophic emergencies. I’m not all that concerned about the cost of doctor visits and smaller things. But that’s me. The one thing I did want was the ability to go to any doctor I choose. Both the health insurance that I chose and the healthshare I was looking into provided that benefit.

I’m happy to share exactly what insurance I chose or answer any other questions. If you want those details, feel free to send me an email or message on Instagram.