Health insurance is an important consideration for any business, including a sole proprietorship. Do sole proprietorships have the same rights and responsibilities when it comes to health insurance? The answer can be confusing since a sole proprietorship is seen differently than other businesses. How does health insurance for a sole proprietor work?

This guide on sole proprietorship group health insurance will help you learn more about how health insurance for sole proprietors works, what your medical coverage options are, and how to navigate the process of getting health insurance set up for your business.

What is a sole proprietor?

The IRS defines a sole proprietor as a person who owns an unincorporated business alone and usually without the benefit of any employees. The IRS points out you are not a sole proprietor if you operate as a corporation.

A sole proprietorship is run by one person who has direct control of the business. The sole proprietor receives the profits from the business and pays all the bills. Some single business owners work as sole proprietors but file as limited liability companies (LLCs) and that changes their status.

A sole proprietorship can hire employees, but it must obtain an Employment Identification Number (EIN) if it uses anyone other than independent contractors. When working solo, the Social Security number of the sole proprietor serves to identify the company.

What is sole proprietor group health insurance?

Group health insurance is an insurance plan that a group or organization—such as a business—may purchase for its members or workers. This type of insurance first appeared in the 1940s as an attractive benefit employers could offer in compensation for flattened wartime wages. It has retained its appeal because of its sheer affordability. Group health insurance distributes the risks and premium costs among the group, permitting lower rates and more affordable individual payments.

Sole proprietorship group health insurance refers to insurance options that are offered to smaller businesses that have been classified as a sole proprietorship.

Do sole proprietorships get group health insurance?

Being a sole proprietor can make things easy when it comes to taxes, but it can get tricky when health insurance shopping. Group health insurance plans do not always apply to sole proprietorships.

For a sole proprietor business to qualify for a small business plan, it would have to have one common-law employee, excluding the owner and spouse. Without that one qualified employee, the business owner can only get individual health insurance. eHealth has a variety of options for individual and family health insurance for you to explore in this situation.

What is a common-law employee?

According to the Small Business Administration, a person is an employee if she or he meets the standards of the common-law test. This is true for sole proprietorships as well as other types of businesses. Independent contractors cannot be categorized as common-law employees.

A worker is considered a common-law employee if the employer controls both of these:

• What work must be done
• How the work must be completed

This test determines whether a company requires a worker to comply with set rules and directions. While somewhat subjective, the IRS does have some guidelines to consider:

• Does the company provide full training to ensure compliance with those rules and directions?
• Does the employer oversee and manage all work?
• Does the sole proprietorship rely heavily on the work of this one individual, or is it something anyone could do?
• Does the sole proprietorship have full control over hiring, wages, and schedule?
• Is the work done in a space owned by the sole proprietorship?
• Does working for the sole proprietor keep this person from getting other employment?
• Does the sole proprietor pay for all the worker’s job-related supplies, travel, and expenses?
• Does the worker make an investment in his or her work product and realize profit and loss from it?

If the answers to these questions are mostly yes, it is possible your sole proprietorship has a qualified employee. In this case, you may be eligible for group health insurance for your business.

No matter what type of business you run, a licensed insurance broker can help you find the best group plan at the right price. These professionals are trained to understand the nuances of a sole proprietorship and help find insurance that may meet the needs of the small business owner like yourself.

If you are a sole proprietor wondering about your next steps in group health insurance, eHealth can help. Contact one of our representatives for help finding the best group plan options for you.

Choosing a Sole Proprietorship Group Health Insurance Plan when Self-Employed

One apparent disadvantage of group health insurance plans involves its exclusive availability to groups, not individuals. However, as long as you maintain one other employee, your business may qualify for sole proprietorship group health insurance. 

There are several different options for health insurance plans for self-employed business owners and their companies, including:

HMO Plans 

HMO (health maintenance organization) plans typically offer affordability at the cost of some flexibility. With this type of health insurance, self-employed individuals or employees must designate a primary care physician in their network. This physician then refers them to any specialists they might need. HMO plans don’t cover any out-of-network care or allow policyholders to see specialists directly. Instead, they must get a referral from their primary physician, which can significantly limit options.

However, HMO plans remain one of the most popular insurance options.

PPO Plans

PPO (preferred provider organization) plans tend to cost more than HMO plans, but they offer significantly greater flexibility for policyholders. PPOs don’t require you to choose a primary care physician or request specialist referrals through an intermediary. You’re free to see doctors outside your network as long as you’re willing to pay extra for those visits. In some cases, insurance providers may cover a portion of those costs, but other times your care may be fully out-of-pocket.

POS Plans

POS (point of service) plans serve as a middle ground between the affordable but limited HMOs and the flexible but pricier PPOs. This kind of plan mostly operates like an HMO, with similar pros and cons, but it allows you to see certain health providers outside your network under specific circumstances. This option may make sense for you if you travel outside your network frequently.

Indemnity Plans

Indemnity plans predate other types of health plans such as HMOs and PPOs. With this type of insurance, the insurer pays a flat percentage (such as 80%) of a given medical expense, while you foot the bill for the remainder. 

This option can prove costly, but it also gives you total freedom as to who you choose to see without a referral from a primary care provider. you don;t even need to select a provider network. However, indemnity plans aren’t required to conform to ACA standards, meaning that they can require underwriting exams, deny people with pre-existing conditions, and exclude certain medical services from coverage.

High-Deductible Health Plans

As a general rule, the higher your policy’s deductible, the lower your monthly premiums. You can also combine this type of plan with a tax-free health savings account of HSA, using the money you place in the HSA to fund your premium payments and any additional expenses.

In some cases, employers only offer one or two options, depending on their agreement with the insurance provider. These are just some of the individual and family health insurance plan options you may have. Keep in mind that options for health insurance for self-employed individuals and businesses may vary by state.

When Can You Sign Up for a Self-Employed Plan?

The ACA health plans available through healthcare marketplaces are usually only available for a specific window of time. Open enrollment for these plans begins on November 1st and extends through January 15th, so you’ll want to submit your application in a timely manner. That said, employer-based insurance may not follow those dates. Once you’ve decided on which health insurance provider you’re planning to use for offering insurance, review their information to determine what the enrollment period is for you and your employees.

Self-Employed Employee Health Deduction

This tax deduction offers a special benefit to certain business owners. If you qualify for this deduction, you may deduct up to 100% of your health insurance premiums. This deduction also applies to any premiums you pay for your spouses and/or dependents.

To qualify for a self-employed health deduction, you must show positive business income from whatever business you select for this purpose. 

You cannot combine income from multiple businesses to meet this requirement.

If you qualify for inclusion on someone else’s health insurance plan, you aren’t eligible for this deduction, which applies only to your own policy.

Using eHealth to Find Self or Group Health Insurance

Whether you qualify for sole proprietor business insurance under a group plan or you need individual insurance for self-employed individuals, eHealth can help. Our convenient online tool allows you to compare plans and find insurance that you can afford easily. Get started today to enroll in business insurance for sole proprietors.

This article is for general information and may not be updated after publication. Consult your own tax, accounting, or legal advisor instead of relying on this article as tax, accounting, or legal advice.