The way people make a living is changing. Partly as a result of a sluggish economy that’s slowly recovering, and partly because expectations for employment are evolving, particularly among the millennial generation. No longer are all people working 9 - 5 for a single employer. Many people work on a contract basis, they work part-time, or on temporary placement for staffing agencies.
If this type of work situation is what’s trending, then don’t people need individual health insurance?
Although some people don’t have a full time job that offers a group health plan, they still need to acquire individual health insurance. In addition, financial planning considerations are much different for a self employed or under employed individual.
Health insurance, retirement plans, taxes, budgeting, and saving are some of the key topics to consider. Independent workers are forced to take more responsibility for these things.
Individual Health Insurance
For individual health insurance, the obvious answer is purchasing it through the Marketplaces. The ACA has extended subsidized coverage to millions of Americans who don’t get it through the workplace. And the fact that people can now purchase their own individual health insurance is great news for many. This type of coverage is portable and customizable and doesn’t cut you off when you lose your job. Many small companies, especially those with under 50 full time employees, might attempt to keep their head counts down (companies with over 50 face penalties if they don’t provide insurance), giving people another reason to take insurance into their own hands.
Other types of coverage that independent workers should consider is life insurance, disability insurance, and retirement planning. Employees in permanent jobs often have access to a 401(k) plan and sometimes even a pension (although pensions are less prevalent these days). Independent workers don’t always have the luxury of enjoying these benefits, especially pensions. However, they can build their own plans using Individual Retirement Accounts, SEP-IRAs, individual 401(k) plans and other programs designed for freelancers and sole proprietors.
How It’s Done
Workers who don’t participate in an employee-sponsored retirement plan can set up a traditional IRA, for example, without facing income-eligibility limits. IRAs, SEP-IRAs, and other programs are generally flexible in terms of contributions, meaning you can reduce the amount you invest in lean years. 1099 employees are not eligible for tax-free reimbursements through Health Reimbursement Arrangements, however, they could be offered the benefit and pay taxes on the reimbursement. Also, an employer could use a taxable stipend.
Though some independent jobs pay quite well, the lack of a permanent employer means people working on their own should have a cash cushion in place to guard against slow periods and other risks. Ronjon Bhattacharya, who owns a staffing firm in Phoenix, said he likes to keep a $50,000 buffer "just in case I lose all my clients."
Regardless of how it’s done, freelance or part-time workers have the opportunity and need to take more responsibility for their individual healthcare, retirement planning, and other types of insurance. It’s wise to keep to anticipate what your individual benefits will cost, and to start setting up benefits on your own. There’s more work to do to determine where to set up your accounts and how much to save from your paychecks, but minimizing the risk is worth it.
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