The Health Insurance Penalty: Do Self-Employed People Pay More?

On average, a 30-year-old self-employed person pays $453 a month for a silver self-employed health insurance plan. A 40-year-old pays an average $509 a month, a 50-year-old pays an average $712 a month and a 60-year-old spends $1,079 each month. ^[4] The good news is that there is a 100% tax deduction from gross earnings if you buy your own health insurance policy.

The average annual family premium contribution for people with work-sponsored health plans in 2023 was $7,529 a year at small businesses and $6,796 at larger companies. ^[5] That’s $626.75 per month and $566.33, respectively. ^[5]

It’s cheaper for older people to take advantage of work-sponsored health plans. On the other end of the spectrum, sometimes self-employed health insurance is cheaper for younger people who make a lower salary. Here’s more.

On This Page

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  Is Health Insurance More Expensive for Contract Workers?

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  Why Are Workplace Group Plans Usually Less Expensive?

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  When Is a Private Health Plan Cheaper Than a Work Sponsored One?

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  Self-Employed Health Insurance FAQs

Is Health Insurance More Expensive for Contract Workers?

Health insurance for self-employed people is often more expensive than a medical insurance policy paid partially or entirely by an employer. In some states, there’s also a penalty for not having health insurance.

Health insurance isn’t always expensive. Affordable Care Act (ACA) plans are priced based on the expected income for the next 12 years. Some people qualify for subsidies and others are eligible for Medicaid or CHIP.

There’s a wide variance in premium pricing for self-employed workers. Factors, such as age, location, plan type and tier and whether the person smokes, will greatly affect the price of a policy. Pre-existing conditions, however, are not considered in pricing premiums.

Self-employed people can also buy short-term plans for four months at a time. ^[2]

Tax Deduction for Self-Employed Individuals

If you are self-employed and buy your own health plan, it is 100% tax deductible. This is another perk that helps even out the discrepancy between buying health insurance independently or through an employer as a full-time employee.

In fact, both health insurance and business insurance can be deducted from gross earnings for the year.

Why Are Workplace Group Plans Usually Less Expensive?

Group health plans through an employer are usually, but not always, less expensive. It depends on the age of the individual and their salary. If they are young and make a lower salary, they may pay less buying their own plan.

Employer group plans are not rated per individual but based on group fixed pricing. ^[1] For many people who are older or smoke, costs are much lower than buying a private health insurance plan on their own.

There is also a variance on how much of the policy the employer pays for. The ACA mandate is that employers pay for at least 60% of the cost of employee health insurance. This includes deductibles, copays and coinsurance. ^[2] It’s important to find out how much the employer pays on a monthly basis.

Employers must offer health insurance to full-time employees who work 30 or more hours a week, if they have 50 or more full-time employees on payroll as well as their dependents. ^[2]

When Is a Private Health Plan Cheaper Than a Work Sponsored One?

In some instances, people in their 20s, who make minimum wage salaries, may get more subsidies on a marketplace plan, making it more affordable than the payroll deductions for a group health plan offered by an employer. However, if they are in poor health and buy a bronze plan, they may pay more overall, because copays and coinsurance will add up with a lower-tier plan.

Rates depend on several factors, so it’s best to compare rates during open enrollment to see which option better matches your budget. Look at premiums, copays and coinsurance when you compare, to get a more holistic view that includes out-of-pocket costs.

Also, an employer may only offer one type of plan and you may be able to buy a higher deductible plan. If you do buy a high-deductible bronze-tier plan, keep in mind that you will pay more in out-of-pocket costs if you do seek care.