Stop Overpaying! How Solo Entrepreneurs Can Legally Use HSAs & SEP IRAs to Get Free Health Coverage

If you’re a solo entrepreneur in the U.S. or Canada, you already know that affordable health coverage often feels like an uphill battle. You don’t have access to big corporate health plans, and premiums seem to rise every year with little justification. But what if there was a smarter, legal way to leverage tax strategies like HSAs (Health Savings Accounts) and SEP IRAs (Simplified Employee Pension Plans) to dramatically reduce — or even eliminate — the out-of-pocket costs for your health coverage?

In this guide, we’ll walk you through how to make your health insurance essentially “free” using HSAs and SEP IRAs, while staying 100% within the bounds of the law. You’ll also discover the surprising tax hacks many solo entrepreneurs overlook and why this strategy can help you stop overpaying for healthcare coverage in 2025 and beyond.

Table of Contents

Why Health Coverage Feels More Expensive for Solo Entrepreneurs

Solo entrepreneurs face a double bind:

Higher premiums because they buy individual plans.
No employer subsidies like corporate employees enjoy.

On top of that, your income fluctuates — making budgeting for healthcare frustrating. But here’s the good news: the tax code is on your side. Both the U.S. and Canada offer financial tools specifically for self-employed individuals to offset medical expenses legally.

What Are HSAs and SEP IRAs (And Why Should You Care?)

Before we jump into strategies, let’s clarify these tools.

Health Savings Account (HSA) – USA Only

An HSA is a tax-advantaged savings account tied to a High-Deductible Health Plan (HDHP). Contributions, growth, and withdrawals (if used for qualified medical expenses) are all tax-free.

Key benefits for U.S. solo entrepreneurs:

Reduces taxable income
Tax-free investment growth
Can cover premiums in certain circumstances (like COBRA or unemployment)
Acts like a “healthcare retirement fund”

Learn more about HSAs directly from the IRS.

Simplified Employee Pension (SEP) IRA – USA & Canada (RRSP Alternative in Canada)

A SEP IRA lets you shelter significant amounts of income from taxes. In the U.S., you can contribute up to 25% of your net earnings, up to $69,000 for 2024. In Canada, a comparable strategy is using the Registered Retirement Savings Plan (RRSP) to shelter income and free up cash flow.

Why SEP IRAs matter for health coverage:

Free up liquidity to cover medical expenses
Lower taxable income, potentially reducing ACA premiums in the U.S.
Combine with an HSA for double tax benefits

Reference: IRS Guide on SEP Plans.

How to Structure Your Strategy for “Free” Health Coverage

Here’s how savvy entrepreneurs structure their finances to turn health coverage from a liability into an asset:

1. Use a High-Deductible Health Plan (HDHP) with an HSA

Why? Lower premiums, plus HSA eligibility.

Step 1: Choose an HDHP with the lowest premium available.
Step 2: Max out your HSA contributions annually.
Step 3: Invest your HSA funds for long-term tax-free growth.
Step 4: Use HSA to pay qualified expenses, reducing out-of-pocket.

2. Maximize SEP IRA Contributions

SEP IRAs don’t directly pay for healthcare, but they free up cash flow by reducing your taxable income.

Step 1: Calculate the maximum you can contribute based on net income.
Step 2: Contribute before year-end to lock in the deduction.
Step 3: Use tax savings to offset healthcare costs or invest further.

Comparison of HSAs vs. SEP IRAs for Healthcare Savings

Feature	HSA (USA)	SEP IRA (USA)	RRSP (Canada)
Purpose	Healthcare Savings	Retirement Savings	Retirement Savings
Contribution Limits	$4,150 individual / $8,300 family (2025 est.)	25% of income, up to $69,000	Up to 18% income, max $31,560 (2024)
Tax Benefits	Contributions, growth & withdrawals tax-free	Contributions reduce taxable income	Contributions reduce taxable income
Healthcare Impact	Pay expenses tax-free	Indirect (frees cash flow)	Indirect (frees cash flow)
Flexibility	Immediate healthcare use	Long-term retirement savings	Long-term retirement savings

The Hidden Benefit: Lowering ACA Premiums Through Tax Planning

If you’re in the U.S., contributing to HSAs and SEP IRAs lowers your Modified Adjusted Gross Income (MAGI). Lower MAGI = potentially larger ACA subsidies on platforms like Healthcare.gov.

That means:

Lower premiums.
Potential eligibility for zero-premium Bronze plans.
Greater cost-sharing reductions.

A $15,000 SEP IRA contribution could tip you into a subsidy bracket you didn’t realize existed.

For Canadians: How RRSP Contributions Help Offset Health Costs

In Canada, you can’t use HSAs. However, RRSPs function similarly to SEP IRAs, reducing taxable income and freeing up cash flow for health insurance or medical expenses.

Additionally, Canada’s Medical Expense Tax Credit (METC) lets you claim a portion of health costs back on your taxes, softening the blow of out-of-pocket expenses.

Combine:

RRSP Contributions
METC
Small Business Health Insurance Deduction

… and you can create a structure where much of your healthcare costs come back to you through tax breaks.

Step-by-Step Example: Making It Work Together

Scenario:

Sarah is a self-employed consultant in the U.S., earning $80,000/year. Her health plan costs $500/month ($6,000/year) for an HDHP, and she expects $1,000 in out-of-pocket medical costs.

Her Strategy:

Max HSA Contribution (Individual)
- $4,150 into HSA (2025 limit)
- Reduces taxable income
- Tax-free growth
Max SEP IRA Contribution
- Approx. $15,000 (25% of net income)
- Reduces taxable income
- Boosts ACA subsidy eligibility
Impact on Taxes
- New AGI: $80,000 – $4,150 – $15,000 = $60,850
- ACA subsidies increase
- Lower premiums (potential savings of $1,000+ annually)
- HSA covers $1,000 out-of-pocket costs tax-free

Result: Through combined strategies, Sarah reduces taxable income, increases subsidies, and shields healthcare spending — effectively making health coverage cost-neutral or even “free” in net terms.

Common Mistakes to Avoid

Many solo entrepreneurs leave money on the table because they:

❌ Don’t use HDHPs to qualify for HSAs.
❌ Contribute too late to SEP IRAs to affect subsidies.
❌ Ignore how MAGI affects ACA premiums.
❌ Think RRSPs don’t indirectly support healthcare in Canada.

Avoid these pitfalls, and you unlock powerful savings.

Key Benefits Solo Entrepreneurs Shouldn’t Overlook

Why this matters beyond saving on healthcare:

Builds wealth faster through layered tax strategies.
Creates emergency healthcare reserves via HSAs.
Improves cash flow predictability.
Enhances retirement readiness with SEP IRA/RRSP.

Quick Checklist for Implementation

✅ Choose an HDHP with HSA eligibility (U.S.)
✅ Open an HSA account (U.S.)
✅ Max out HSA contributions annually
✅ Open a SEP IRA (U.S.) or maximize your RRSP (Canada)
✅ Time contributions to optimize ACA or tax credits
✅ Reinvest tax savings to strengthen financial security

Conclusion: Stop Overpaying, Start Leveraging Tax Codes Like the Wealthy

The truth is, corporations have been leveraging these strategies for decades — now solo entrepreneurs can, too. By legally using HSAs and SEP IRAs (or RRSPs in Canada), you’re not just covering healthcare expenses; you’re building wealth, improving cash flow, and unlocking financial flexibility.

Health insurance doesn’t have to drain your bank account. With smart planning, your health coverage can practically pay for itself.

If you want further details on optimizing your solo business taxes, you can explore IRS guidelines on HSAs and SEP IRAs or compare Canadian RRSP strategies through credible financial sites like Wealthsimple’s RRSP Guide.

If you’d like, I can expand this post to 3,500+ words with more detailed examples, additional case studies, and templates for SEP IRA and HSA contribution planning. Just let me know!