1099 Employee Health Insurance

For many workers in the U.S., one of the perks of being hired by a company is getting health insurance coverage from it. Employer-sponsored health coverage is the most common type of private health insurance in the country. Not everyone who works for a company or who provides services to a business is eligible for health insurance coverage from it, though. In many cases, part-time employees can’t get coverage. 

Independent contractors, or 1099 employees, also typically don’t get employer-sponsored health coverage. This is because independent contractors are technically self-employed. However, some companies might offer group health insurance to their independent contractors. Learn more about the difference between 1099 and other types of workers and what the health insurance options are for the self-employed.

What Is a 1099 Employee?

The phrase “1099 employee” is technically a misnomer, as a person who gets paid on a 1099 basis is legally not an employee of a company. The Internal Revenue Service (IRS) has specific rules regarding who qualifies as an employee of a company and who can be classified as an independent contractor. The IRS rules examine three categories to determine the role a person plays in a company:

  • Behavioral: Generally, a 1099 independent contractor has more control over how, when and where they perform their work than a company’s employee. An employer can tell an employee exactly how to perform a specific task. Companies have less say over how a 1099 worker goes about their work.
  • Financial: Employees of a company typically don’t have to pay for their own equipment or gear. They use the company’s materials, such as computers or office supplies. Employees also usually get reimbursed for business expenses, such as meals with clients. Independent contractors are financially responsible for their equipment and expenses.
  • Relationship: The relationship between the individual and the company plays a big role in determining whether they fall under the employee or independent contractor category. Whether an individual receives benefits, such as access to a retirement plan or group health insurance, and the duration of the relationship — for example, if it’s meant to continue indefinitely — determines whether the person is an employee or independent contractor.

W-2 vs. 1099 Employees

A key difference between a person who’s an employee and someone who’s an independent contractor is how the company they work with reports their income. Often, companies that hire employees withhold taxes from the employees’ paychecks. At the end of the year, the company files Form W-2 for each of its employees. Form W-2 reports the amount paid to employees as well as the taxes paid to the federal government, state government, Social Security, Medicare and local government. Employees then use their Form W-2 when they file their income tax returns.

Along with filing a W-2 form, employers also have to pay half of their employees’ Social Security and Medicare taxes. The company needs to pay employees at least the minimum wage, too. Employees can cost a company more than 1099 independent contractors, but the trade-off is that employees tend to be loyal to their employers, and the employer also has more control over the work the employee performs.

Independent contractors receive Form 1099 at the end of the year from companies that paid them more than $600. The self-employed use Form 1099 to calculate their earnings for the year and to complete their tax returns. Unlike a W-2, Form 1099 typically doesn’t list the taxes paid, as the company usually doesn’t pay any taxes for its independent contractors. A self-employed 1099 worker has to pay the full amount of Social Security and Medicare taxes. They are also responsible for paying the federal, state and local government taxes directly.

Benefits of Being Self-Employed

Many people choose to be self-employed because it suits their personality and lifestyle. They have greater control over scheduling their workday and deciding what type of projects or tasks they want to work on. Depending on their industry and experience level, a self-employed individual might earn more working for themselves than they could as an employee. Individuals who have other pressing commitments in their lives, such as raising a family or pursuing hobbies, may find that self-employment lets them earn an income while putting other interests first.

Can a 1099 Employee Get Health Insurance?

People who are self-employed or classified as independent contractors can get health insurance. However, unlike an employee of a company, someone who gets a Form 1099 typically needs to purchase their own health insurance policy. While a 1099 worker usually doesn’t qualify for employer-sponsored health coverage in California, they can still qualify for a private individual or family insurance policy. 

What Is Group Health Insurance?

A group health insurance policy offers coverage to multiple people. Group health plans often cost less for the insured, as the risks are spread over a wider pool, making the cost of coverage less for the insurance provider offering the plan.

To qualify for a group health insurance plan in California, a company needs to have at least one employee. The employee needs to be a W-2 worker, not an independent contractor. Group plans vary based on the size of the employer. A company with at least one but not more than 100 employees can purchase a small business plan. 

The coverage available under a group health insurance policy doesn’t have to be identical for each member of the plan. A basic level of coverage might be offered. People who have higher medical costs or who want more coverage usually can choose to purchase add-on coverage or a policy that has lower out-of-pocket expenses but a higher monthly premium.

What Are the Benefits of Group Policies?

A notable benefit of group health insurance is that it often has lower premium costs compared to private individual or family health insurance policies. In many cases, group health insurance policies are health maintenance organizations (HMOs), which can further reduce the cost of premiums. Under an HMO, specific medical providers contract with an insurer, offering care to members of a policy at agreed-upon rates. 

Offering a group health insurance plan also directly benefits employers, as they can enjoy tax credits. Companies that offer health insurance to their employees might also have lower rates of turnover and higher rates of employee satisfaction. 

Do 1099 Employees Qualify for Group Health Insurance Policies?

While a 1099 worker usually can’t join a group health insurance plan through a company they work with, there are group health insurance plans available outside of employers. For example, some organizations that cater to the self-employed might offer group coverage. It’s also common for membership organizations to offer a health insurance plan to their members. 

Otherwise, a 1099 worker can purchase their own insurance policy through a private insurance provider. 

Best Health Insurance Options for 1099 Employees

If you receive a 1099 from one or more companies, you most likely can’t get health insurance coverage from that company. You aren’t out of luck when it comes to your coverage options, though. Self-employed individuals have several insurance choices available:

1. Individual or Family Health Insurance Plans

In many cases, the easiest way to get coverage when you’re self-employed is to purchase a policy from a private insurer. You can buy an individual policy if you’re the only person you need to cover or a family policy if you have a spouse and dependents who also need coverage. 

When you buy an individual or family policy, you can choose the level of coverage that works best for you, using the metallic tier system. Bronze-level plans typically have lower monthly premiums but you’ll pay more when you need to see a doctor or fill a prescription. Gold and platinum-level plans cost the most in premiums but have fewer out-of-pocket costs. The option that is right for you depends on your expected annual health care costs and your budget.

Depending on your income, you might also qualify for a subsidy to reduce the cost of your monthly premiums. The subsidy can lower the amount you pay monthly or you can choose to get it as a tax credit when you file your annual return. Also, self-employed individuals who meet certain requirements can usually deduct the full cost of their health insurance premiums from their taxable income.

2. Coverage Through Spouse’s Job

Another way to get health insurance coverage when you are a 1099 worker is to get covered under your spouse’s employer-sponsored plan if they have one available. Getting group coverage through your spouse’s employer can often be more affordable than purchasing an individual health insurance policy through a private insurer. Plus, if you have an employer-sponsored plan available through a spouse and you decide to get your own private plan, you can’t deduct the cost of your private health insurance premiums from your income.

3. Medicaid

Depending on how much you earn as a self-employed worker, you might qualify for Medicaid coverage. Medicaid coverage is through the state and is usually only available to people with very low incomes. The exact income limit varies by state but is usually no more than 133% of the federal poverty line. Certain groups of people, such as pregnant women, may qualify for Medicaid coverage even if they have higher income levels. 

4. Small Business Health Insurance

If you’re self-employed and you employ others through your business, your business might qualify for a group plan. To qualify for a small business plan, you only need to employ one other person at your company. Usually, the employee needs to be someone other than your spouse for your business to be eligible for a group plan. 

Getting group coverage for yourself and any employees you have can make financial sense, as your premiums are likely to be lower than if you purchase an individual policy. If your company can cover part of the employees’ health insurance costs, your business might claim a tax credit through the Small Business Health Options Program (SHOP).

What to Look for When Choosing Insurance

Whether you’re choosing health insurance for yourself, your family, or yourself and your employees, there are some things to keep an eye out for:

  • The plan tier: Health insurance tiers make it easy to compare different plans at a glance. When you see that a plan falls under the “Bronze” category, you know right away that it will have higher out-of-pocket costs than a Gold plan. If you only go to the doctor for preventive checkups, a Bronze tier plan can make more sense for you than a policy that has higher premiums but lower out-of-pocket costs.
  • The total costs: The price of the plan’s premium only tells part of the story when it comes to your total financial responsibility. Also consider the cost of the deductible, which is the amount you’ll need to pay before insurance starts to cover the cost of your care. Some plans also charge a copay, which you have to pay before you receive services, such as routine bloodwork or a doctor’s visit.
  • The type of coverage: The type of plan you purchase determines the health care providers you can see and the cost of seeing certain providers. With an HMO, for example, you are usually limited to seeing in-network providers if you want your plan to provide coverage. If you purchase a Preferred Provider Organization (PPO) plan, you can see out-of-network providers but will usually pay a premium to do so. Some types of coverage have lower premiums than others in exchange for reduced flexibility and a more limited provider choice.

Another thing to consider when choosing a plan is its overall quality. Some plans are rated more highly than others based on the care their members receive, the quality of customer service and the overall management of the plan. It’s usually worth it to choose a highly rated plan, as you can rest assured you’ll get the quality of care you need when you most need it. 

Are You a 1099 Independent Contractor? Get a Quote From Health for California

While you most likely won’t get health insurance from the companies you work with as a 1099 independent contractor, you still have multiple health insurance options in California. Health for California can help you find the plan that best fits your needs, whether it’s a private insurance policy or a plan for your small business. To learn more, contact us today for a quote.

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