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Guide To Purchasing Health Insurance on the Marketplace for Physicians Who Retire Early or Are Self-Employed

While most physicians receive health insurance benefits through their jobs or, if applicable, their spouses, there are several reasons why physicians may need to look for and secure coverage from the health insurance marketplace. We often have questions about whether it’s better to be paid as a W2 employee or 1099 as a physician, and one of the big factors is whether you need health insurance coverage. Physicians who are self-employed, doing locum tenens, receiving 1099 income, in between jobs, or who retire earlier than they are eligible for Medicare benefits will often need to buy health insurance on their own, and this can get very expensive. Below, we’ve compiled a guide to help doctors navigate buying health insurance on the open marketplace, and include strategies for specific situations.


Disclaimer: As always, you should consult appropriate expertise before taking action based on this content, which is not individualized to your personal situation and can not be guaranteed to be accurate or up to date. We are not formal financial, legal, or otherwise licensed professionals, and you should consult these as appropriate. To learn more, visit our disclaimers and disclosures.


Different plan options when purchasing health insurance



How Purchasing Health Insurance Plans Work on the Marketplace


As most doctors already know, the Health Insurance Marketplace is a system set up by the government to help individuals who don’t have employer-sponsored health insurance plans or other access to health insurance find coverage options. The policies themselves are not offered by the government. Premiums are made directly to the insurance provider you select from the plans available in your state.


The Health Insurance Marketplace works on an open enrollment period, similar to most employer plans. Open enrollment dates of importance are:

  • Enroll by December 15 for policies that start January 1

  • Enroll by January 15 for policies that start February 1


If you have a qualifying event, you will be able to purchase a policy outside of the standard enrollment period. Qualifying events for a Special Enrollment Period include:

  • Losing your previous health insurance coverage (such as a job loss or change)

  • Moving

  • Getting married

  • Having a baby

  • Adopting a child


Health insurance plans on the open marketplace typically factor in your income when determining what your monthly premium payment will be. Lower income households often receive subsidies that lower their premiums, while high-income earners such as physicians can expect to pay more. Not surprisingly, as a result, doctors often complain about the cost of marketplace insurance plans. 


Why are these policies generally more expensive than the ones included in a physician’s overall compensation package through their employers? For most doctors who get insurance through work, they pay a portion of their monthly premiums, but the employer usually foots the majority of the bill. The employer also gets discounts for group policies. Individuals shopping the Marketplace lose both these advantages, and it shows when they compare premium options.


While these plans can be expensive, there are ways to help reduce the cost, depending on your situation. We look into different strategies below.



Selecting a Health Insurance Plan on the Marketplace


When you need an individual health insurance plan, there are a few different ways to obtain a plan.


Healthcare.gov offers options to help you search and compare individual plans available on the Marketplace. This can be the most direct way to purchase a plan, but it’s perhaps the most complicated and time consuming as well. You will have to check if you qualify, complete the questionnaire, compare all available options, and then sign up for a plan directly yourself.


Another option is to use a health insurance broker. Similar to the healthcare.gov Marketplace search navigator, an insurance broker will help you price and compare options, but they do all the leg work for you. While they get paid by the insurance company for being a middle man, they are licensed and work with many different carriers. This means you don’t have to pay them directly for using their services, and they can help you shop around to get the best policy available. In most cases, they get paid a similar amount regardless of which plan they enroll you in, and in general, if they want you to sing their praises and bring more business to them, it’s in their best interest to give you the best rates that they can find. If you have any doubt that you’re getting a competitive policy, you can try running quotes at two places to have more confidence that you’re getting the best deal.


You can also work directly with an insurance agent with one of the insurance companies, but they will only be able to guide you through different plan options that they provide, similar to life insurance or disability insurance. Since similar HDHP or PPO plans can have different premiums based on the insurance provider, we highly recommend going the DIY or third-party broker route.


Visit our insurance agents for physicians page for independent insurance brokers we recommend for different types of insurance.



Optimizing Your Health Insurance Plan Selection


If you previously worked for a healthcare system that provided health insurance coverage and they offered more than one plan, you already know–not all plans are created equal when it comes to premiums.


If you are healthy and rarely use your health insurance, a HDHP plan can be a great way to save on money premiums. The trade off of higher deductibles and maximum out-of-pocket costs won’t affect you as much as someone with a chronic condition who needs frequent care or expensive medications.


As an added bonus to selecting a HDHP, most are qualified plans (be sure to check) that allow you to have a Health Savings Account (HSA). HSAs offer triple tax advantages in the form of tax-free contributions, tax-free growth when invested, and tax-free withdrawals when used for eligible health expenses. We are big fans of these as a ‘stealth IRA,’ and feel that they are a powerful tax strategy for physicians. We often talk about these in our personal finance primer for physicians as one of the tax advantaged accounts to consider if eligible.


Learn more in our dedicated article about health savings accounts.


If a HDHP isn’t the cheapest at first glance, it may still be worth considering. For example, if a prescription is what would consume the bulk of your out-of-pocket expenses, check with the manufacturer for payment assistance options. While many are income based that will exclude most physicians, some aren’t and may cover most of your deductible. When you then compare the difference in premiums between the plans, you may find the HDHP actually ends up cheaper in your situation.


You can also change your plan during each enrollment period, depending on your circumstances. For instance, if you typically have a HDHP but are planning on having a baby, you may want to switch to a traditional PPO or HMO for a year or two to help cover the cost of frequent OB-GYN appointments, labor and delivery, etc. Then you could switch back to a HDHP once things have stabilized back to your normal health spending. Just be mindful of the rules of contributing to an HSA to make sure you don’t violate your ability to contribute for that tax year.


Of course, if you plan on using your health insurance regularly because you have chronic medical care needs, are at an older age, or don’t have the savings to risk having to pay a high out of pocket expense if something unexpected happens, the high deductible plan may very well not be the best plan for you. You’ll want to do the math on how much you anticipate spending with each option - don’t let the tax tail wag the dog. In fact, you may just psychologically not like having to think about whether or not you want to see a physician or get a test because you know you’ll be footing a bill. In this case, getting a more conventional option, such as an HMO, a PPO, a POS, or an EPO may make sense.



Types of Plans and Networks


The big factors to consider are what your costs will be (factoring in deductibles, coinsurance, copays, and premiums), whether or not you need a PCP, whether or not the PCP has to place referrals to specialists, and how much in and out of network coverage they have.


Which type of plan will be best for you is going to depend on what your particular preferences are, whether you have particular physicians you want to see and what networks they are in, and how much you want to pay in premium versus out of pocket. While some plan types will allow you to use most doctors or health care facilities, others will limit your choices or charge more or potentially not even cover visits or issues that happen out of their networks.


Although you may be very well aware of these as a physician, here are some basic qualities (but obviously read the individual plan descriptions and details before choosing):


HMO (Health Maintenance Organization)

HMOs tend to limit coverage to physicians and other healthcare practitioners who work for or contract with them, and generally don’t cover out of network care unless it is in the context of an emergency room visit. Many times these are very local and require you to live or work in their particular service area to be eligible. They tend to focus on prevention and wellness (thus usually requiring that you have a PCP) and may offer discounts for engaging in healthy behaviors. You usually need referrals to see specialists. Because of their limited network, an HMO plan usually has lower monthly premiums than a PPO, and out of pocket costs tend to be lower. You may also hear of EPOs (Exclusive Provider Organization), which are in many ways similar.


PPO (Preferred Provider Organization)

PPOs also contract with hospitals, doctors, and other healthcare practitioners to create a network, and you will pay less if you use those physicians. You will still be able to use doctors, hospitals, and other practitioners outside of the network at an additional cost. They will likely list different payment structures for co-pays, deductibles, and co-insurance for those that are in and out of network, so keep these in mind when you are browsing plans. While PPO plans recommend that you choose a PCP, it’s not required, and you don’t need a PCP to refer you to specialists. These plans usually come with a deductible and/or copay for most visits. The big benefit to PPOs is the amount of options and flexibility to see whoever you want and not need to have all care go through the PCP, but the downside is that your out of pocket costs tend to be higher.


POS (Preferred Provider Organization)

POS are similar to PPOs in that you pay less if you use health care systems and practitioners that belong to the plan’s network. They also tend to have less options. One big thing about POS plans is that they heavily emphasize your relationship with your primary care practitioner, and they usually require that you get a referral from your primary care doctor if you want to see a specialist. One nice feature is that these plans typically don’t have a deductible as long as you choose an in network PCP and get referrals to other specialists from that PCP when needed. You may still have a copay. POS plans typically also offer cheaper premiums since there are less options.



Optimize Your Tax Deductions as an Independent Doctor


If you are shopping for health insurance on the Marketplace because you do not have employer coverage at your job, you may be able to deduct your health insurance premiums from your taxes, which can help significantly lower the cost, especially for high-income earners such as doctors.


Deductions for health insurance premiums is one of the benefits of being a 1099 physician. This deduction covers medical, dental, and vision.


You may even be able to write off other healthcare expenses.


Learn more on tax deductions for 1099 physicians.


If you are a small business owner, such as a physician running a solo private practice, you can also deduct what you pay in health insurance premiums. While the standard Marketplace doesn’t offer small business plans, they do have a small business option that can help you find plans through an insurance agent or broker.


Unfortunately, this is not necessarily true if you are a W-2 employed physician for a practice that doesn’t provide an employer-sponsored plan. In this instance, you are only able to deduct your premiums as part of your overall medical expenses, which means you have to itemize your taxes in order for them to qualify. You also can only deduct medical expenses that exceed 7.5% of your adjusted gross income.



Optimizing Your Early Retirement Strategy for Purchasing Health Insurance on the Marketplace


As of 2024, most people are first eligible for Medicare at the age of 65. Many physicians are part of the F.I.R.E. movement and hope to retire earlier, which means they have to find health insurance to cover the gap.


Early retirement is an interesting topic when it comes to purchasing health insurance on the Marketplace. Since premiums are determined by how much income you have, you should come up with a comprehensive drawdown strategy from your investments to help minimize what the government treats as your income when determining your premiums, while also helping maximize your continued growth to maintain your early retirement status.


Not only that, but a comprehensive financial plan can help you prepare ahead of time by optimizing how you invest and save for your retirement. Plan costs on the Marketplace change every year, so it’s hard to say how much, specifically, you’ll need to save, but it’s usually less than what people assume, especially when they optimize how they refund their retirement income.


To understand how this works, let’s briefly look at main types of retirement income.


Different income buckets in retirement and how they count toward income toward health insurance premiums

Traditional Retirement Accounts


Traditional retirement accounts grow tax deferred. This means you lower your taxable income when you make contributions to these types of accounts, then you pay taxes when you withdraw funds. This will count toward your income, but Required Minimum Distributions (RMD) don’t begin until the age of 73 (as of 2024). This means the government doesn’t require you to draw down these accounts and count them toward your income until after you can start getting Medicare coverage. The designated retirement age when you can withdraw from these types of account without restrictions or penalties is 59 ½ (as of 2024).


You’ll want to minimize the amount of income you withdraw from traditional accounts during your early retirement phase.


Roth Retirement Accounts


With Roth accounts, you pay taxes on contributions before adding funds to these accounts. The balance then grows tax free, and you don’t have to pay taxes when you withdraw the funds. This means that any distributions from these accounts aren’t counted toward your income. While the designated retirement age for Roth accounts is 59 ½ as well, you can withdraw penalty free the contributions you’ve made (but not the growth) beforehand.


You’ll want to balance your Roth withdrawals in early retirement. While they don’t come with a tax bill, you’ll lose all future tax-free growth potential by unplugging your contributed amounts.


Funds Outside of Retirement Accounts


High-income earners and physicians hoping to retire early will also likely have investments outside of tax-advantaged retirement accounts in a taxable brokerage account. These funds can be used to supplement retirement before the set retirement age for tax-advantaged accounts.


Techniques used may include optimizing which investments are invested where, i.e. holding high income generating assets in tax-advantages accounts and prioritizing low cash generating but higher growing investments in brokerage accounts. Tax loss harvesting can also help lower taxable income during this stage of life to minimize health care insurance premiums, especially if you have real estate producing incoming during your retirement.


If you are planning on retiring early, you will likely want to save up a few years’ of expenses in a high-yield savings account or similar short-term investing option. This extra cash stockpile can help you ride downturns in the stock market so you don’t have to pull out invested amounts. This cash on hand can also be a part of your health insurance premium payment strategy. Cash on hand is income already earned, so it isn’t included in what the government counts as income when calculating your premiums. Though the gains will be taxed, it will be just on the interest earned, not the entire cash balance. If you’re not comfortable figuring this out on your own, a financial advisor used to working with physicians can help you find the best investing strategy to maximize your growth in retirement while minimizing your taxable income that counts toward your health insurance premiums on the Marketplace.



Alternative Options to the Marketplace Health Insurance Plans


Before or while exploring the Marketplace, there are a few other options to consider and compare when planning your health insurance coverage.


COBRA


Many large companies, and even some small employers, offer COBRA insurance that extends the current plan you’ve been on for up to 18 months. While you would get the same coverage you had while employed, you likely won’t have the same premium amount, as the employer will no longer foot their portion of the premium, leaving the entire bill to you. This may or may not be cheaper than a plan on the Marketplace as you start your retirement journey. 


Also note that if you are in between jobs and have less than a 2 month gap, and you qualify for COBRA, you don’t have to purchase COBRA right away - you can actually retrospectively enact COBRA for two months only if you need to use your health insurance in case of an emergency. In this case, you have up to 60 days from a “qualifying event” or the date your notice is mailed (whichever is later) to enroll in COBRA. If you do have to enroll, you’ll have to pay retrospectively for the whole two months, but if you don’t need to enroll, you’ll save yourself health insurance premiums during that time.


Learn more about COBRA health insurance.


Employer Retiree Plans


If you’ve worked for your employer for a while, they may have some sort of retiree health insurance plan as an added, extended benefit even after separation. Depending on how long you were with the company, they may continue to supplement part of your premium costs for you. In a best case scenario, like with a government employer, you may even get health insurance benefits for life. 


Major Medical


Major medical plans are also known as short-term health insurance plans. They are meant to be used during gaps in other health insurance coverage during transitional periods in life. They often do not provide coverage for pre-existing conditions.


If you are healthy and very close to Medicare or retirement age, or can’t get a Marketplace plan immediately (even with Special Enrollment, it can take a month or two to get coverage), this can be a short-term option.


Healthcare Sharing Ministry


The most important thing to know here is that these aren’t health insurance plans, and therefore in many states, these are not regulated by insurance consumer protection programs. These are more cost sharing programs. They are typically faith based and may ask you to agree to live by a certain moral code and lifestyle. You contribute a monthly “premium” to a collective account. That pool of money is then used to pay for qualifying medical expenses as they occur for all members. Because these are run by nonprofits, the premiums tend to be lower than most other health insurance options. However, in order to minimize risk to the members, these plans often have restrictions on coverage for pre-existing conditions and certain treatments, or require members with certain conditions to pay more.


While they can be a good supplemental option, it’s important to remember that since it isn’t actual health insurance coverage, it’s a good idea to investigate what costs as “qualified” expenses under the plan and any limitations to coverage. Know that there is no guarantee that your bills will be paid. Each of these has some process to review medical costs and to determine if you are eligible and how much you are eligible for.


Another important thing to note - since healthcare sharing plans are not ACA compliant, you won’t be eligible for a special enrollment period if you lose coverage or if the plan isn’t meeting your needs, but will have to wait until open enrollment.



Conclusion


While having to buy an individual health insurance plan from the Marketplace usually costs more than having a group plan, there are ways to optimize what income the government assesses when calculating your monthly premiums. It also usually costs less than the horror stories of thousands a month you hear circulating.



Additional Resources for Physicians


Help along the way can save you a lot of time and money. Explore:


We also have resources to help you plan ahead for retirement:


Other types of insurances doctors should usually have:

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