Currently, sole proprietors and freelancers can only purchase major medical health insurance covering all preexisting conditions through the Affordable Care Act (ACA) individual market, created under former Democratic President Barack Obama’s 2010 healthcare law. Now 10 years after its adoption, it is clear that the impact of the ACA, or Obamacare, on sole proprietors and freelancers is mixed. While the ACA has worked very well for low-income sole proprietors and freelancers whose insurance is subsidized, a very large number of middle income self- employed Americans in each state are now going uninsured.
First, we need to discuss what Obamacare unequivocally got right. The ACA eliminated the insurance company practice of medical underwriting. Medical underwriting is a process by which health insurers used an applicant’s medical history to decide whether to deny coverage all together, approve coverage but exclude pre-existing health conditions, or charge an applicant a higher rate. Medical underwriting is no longer allowed in the individual market due to the ACA. Additionally, the ACA eliminated annual and lifetime limits on individual, small group, and large group health plan benefits. Before the ACA, an estimated 105 million Americans had some sort of lifetime cap on their health plan benefits. These two insurance market reforms have benefited everyone equally, regardless of their income levels.
It is also clear the ACA has greatly benefited low-income sole proprietors and freelancers. The ACA offers generous subsidies and cost sharing to lower income individuals and families. By purchasing through a government marketplace, individuals are eligible for financial assistance to help cover premiums based on their income. In general, an individual needing coverage is eligible for a subsidy if their annual 2020 income is between $12,490 to $49,960. These subsidies limit premium expense (depending on income qualification) from 2 percent of income to 9.5 percent of income.
Although premiums for marketplace ACA plans increase from year to year, if an individual qualifies for a premium subsidy, it should cover nearly all of the cost increase. Additionally, individuals are eligible for help with lower deductibles, copays, and annual out-of-pocket limits on cost sharing if they buy a plan through a government marketplace and their income is between $12,490 and $31,225. Due to historical inequities, African Americans and Latinos are disproportionately represented among lower-income Americans and have had the highest uninsured rates before the implementation of the ACA. Consequently, they have also benefited greatly under the law. By this measure, the ACA also deserves very high marks.
However, for middle income sole proprietors and freelancers, the “Affordable” part of the Affordable Care Act has seemed like an empty promise. Premiums, deductibles, and other out-of-pocket costs are an extraordinary burden on their households. The average premium for a mid level plan for a 40-year-old who doesn’t qualify for a subsidy has climbed to $462 a month in 2020, up from $273 in 2014, according to the Kaiser Family Foundation. In addition, the law has done little to address sky-rocketing deductibles and soaring prescription drug costs. Deductibles can be as high as $8,150 for individuals and $16,300 for families. Both premiums and deductible levels for the unsubsidized worker are significantly higher than workers who get their health insurance from an employer in the large group market or who qualify for a subsidy in the individual market. Unaffordable and rising premiums and deductibles in the ACA individual market are the primary reason a high percentage of middle income sole proprietors and freelancers are going uninsured right now.