Healthcare coverage from private companies, as opposed to government-provided options, constitutes private health insurance. The acquisition of health insurance can be pursued through various avenues, with health plans generally classified into two major categories: private and public.
In the United States, a predominant portion of the population, approximately 66%, opts for private health insurance, as compared to the nearly 36% relying on public plans. In this article, you will learn what private health insurance is, the types, how it works, and more.
What is Private Health Insurance?
Private health insurance is a health insurance plan offered by the private health insurance industry rather than government-operated insurance programs. Currently, private health insurance extends its coverage to just over half of the U.S. population.
This category encompasses employer-sponsored plans, accounting for approximately half of the American population. An additional 6% of Americans secure private coverage independently. This is outside of the workplace, within the individual or family health insurance market, whether on or off the exchange.
Furthermore, various types of private health insurance exist that undergo less regulation compared to standard major medical coverage. These include short-term health plans, fixed indemnity plans, critical illness insurance, accident supplements, and dental and vision insurance, among others.
This coverage is typically regarded as supplementary rather than comprehensive health coverage. However, in the case of short-term health insurance, it’s suitable for a limited duration.
How Does It Work?
A premium denotes the sum of money an individual or business remits to an insurance company in exchange for coverage. In the context of health insurance, these payments are commonly made every month.
The acquisition of private health insurance involves a more intricate process than merely opting for a company plan, and it often entails having the premium automatically deducted from your monthly paycheck.
Typically, you are required to make monthly or annual payments and subsequently file claims for any private healthcare services you receive. The insurance coverage will then offset a portion or the entirety of the expenses associated with private treatments.It’s important to note that health insurance is structured to address newly arising conditions that occur after the initiation of your policy.
Types of Private Health Insurance
There are various types of private health insurance that you can purchase.
Employer-Sponsored Health Insurance
Many employers provide group health insurance as a component of their benefits package. This coverage may be accessible for individuals, or employers may offer the option to extend it to spouses and dependents at an additional cost.
Under the Affordable Care Act (ACA), businesses with 50 or more full-time employees are mandated to offer comprehensive health insurance covering at least 60% of health insurance costs. Failure to provide the minimum affordable coverage may result in a tax penalty for the business.
ACA Marketplace Plans
Private health insurance can be obtained from reputable companies like Kaiser Permanente, Blue Cross Blue Shield, and UnitedHealthcare through the ACA marketplace at Healthcare.gov. This platform enables you to assess and compare different health insurance plans, and you can enroll through various channels, such as online, over the phone, or in person.
The federal government administers its health insurance marketplace in the majority of states, while some states manage their exchanges. When applying for ACA health insurance, you provide household and income details.
Using this information, the marketplace calculates the estimated cost of health insurance, factoring in potential premium tax credits and subsidies.
Individual Health Insurance
Individual health insurance is also available for purchase directly from health insurance companies. While these plans are not obligated to adhere to ACA regulations, many choose to do so. Some plans, however, may not provide all the essential health benefits mandated by ACA plans.
It’s essential to note a crucial distinction between buying on the marketplace and purchasing directly from an insurance company. Plans acquired directly from a company do not qualify for premium tax credits or subsidies, unlike marketplace plans. However, if you are eligible for these cost savings, it may be advantageous to opt for a marketplace plan.
Short-Term Health Insurance
Short-term health plans can deny coverage to individuals with pre-existing conditions and often impose restrictions on prescription drug benefits, doctor visits, and covered services. Maternity care and mental health services are typically not included in the coverage.
However, it’s crucial to acknowledge that while short-term plans come with lower costs, they do not provide the same level of coverage as standard health plans. As a result, you may face higher expenses when seeking care.
Typically, short-term health insurance lasts for an initial period of 364 days, with the possibility of renewal for up to 36 months in most states. However, some states have additional regulations, and some, like California, do not permit the sale of short-term health insurance plans.
Catastrophic Health Insurance
Catastrophic health insurance is a specific type of coverage available on the ACA marketplace, offering coverage equivalent to that of an ACA plan but with a significantly high deductible.
For instance, the deductible for an individual catastrophic health insurance plan is $9,100, while family coverage carries a deductible of $18,200. Once this deductible is met, the catastrophic plan covers the remaining healthcare costs for the rest of the year.
Eligibility is limited to individuals under the age of 30 or those who qualify for a hardship exemption. For example, individuals facing homelessness may qualify for a hardship exemption.
While a catastrophic plan might be an option for a young individual seeking a safety-net plan, it is essential to consider that this low-cost choice comes with substantial out-of-pocket expenses when healthcare services are needed.
What Does Private Health Insurance Cover?
Private health insurance plans generally encompass medical, hospital, and preventive care. The extent of coverage varies among plans, but they commonly assist in offsetting costs for various medical services, including:
- Inpatient Care
- Healthcare Consultations
- Mental health treatment
- Prescription Medications
- Rehabilitation and Physical Therapy Services
- Specialized medical care
ACA plans on the marketplace must cover 10 essential health benefits at a minimum, which employer-sponsored health plans also often cover. They include
- Outpatient Services (Ambulatory Care)
- Emergency Care
- Hospitalization
- Laboratory Services
- Mental Health and Substance Use Disorder Services and Additional Offerings
The coverage for care outside of your provider network is contingent on the type of health insurance plan. Preferred Provider Organization (PPO) plans permit out-of-network care, although such care typically incurs higher costs compared to in-network services.
Conversely, Health Maintenance Organization (HMO) and Exclusive Provider Organization (EPO) plans typically do not cover out-of-network care, except in emergencies.
What Does Health Insurance Not Cover?
There are various health policies that private health insurance does not cover, which include:
Medicare
Medicare is the federal government-operated health insurance program designed for eligible Americans. As per the latest data from the U.S. Census Bureau, slightly more than 18% of Americans are enrolled in Medicare. To be qualified for Medicare, you must be 65 years of age or older, have a qualified disability, and have an illness requiring a transplant.
Medicaid
Medicaid is a government-funded health insurance program aimed at providing coverage for low-income households, including pregnant women and individuals with disabilities. It is accessible in all states, with eligibility criteria differing from state to state. Qualified applicants can obtain coverage immediately.
Alternatively, individuals can explore the health insurance marketplace, where they can complete an application to assess the available options for their specific circumstances.
Children’s Health Insurance Program (CHIP)
The Children’s Health Insurance Program (CHIP) offers affordable health insurance for children in families facing financial constraints that make private health insurance unattainable and disqualify them from Medicaid due to income thresholds. This state-administered program operates through joint funding from both states and the federal government.
The integration of CHIP into a state’s Medicaid program varies; some states consolidate CHIP and Medicaid, while others maintain separate programs for each.
The coverage provided by CHIP. It encompasses various services, including well-baby and well-child visits, dental insurance, behavioral treatment, and vaccination benefits.
How Much Does Private Health Insurance Cost?
According to a study by the Kaiser Family Foundation, the average annual premium for an employer-sponsored insurance plan providing individual coverage in 2023 was $8,435. For family coverage, the annual premium rises to $23,968.
Moreover, if you opt for coverage through the Health Insurance Marketplace, you might be eligible for a cost-sharing subsidy and advanced premium tax credits. These subsidies can potentially reduce your premium payments, deductibles, and any co-payments or co-insurance responsibilities.
Why Should I Get Private Health Insurance?
Certain situations may increase the likelihood of requiring the acquisition of an individual health insurance policy. These circumstances encompass:
An adult of 26 years or older
As stated in the Affordable Care Act (ACA), individuals under the age of 26 have the option to be covered as dependents under their parent’s health insurance plan. However, upon reaching the age of 26, they are obligated to secure their insurance coverage.
Unemployment
In the event of job loss, individuals may qualify to sustain coverage under their employer’s health insurance plan for a defined duration through the Consolidated Omnibus Budget Reconciliation Act (COBRA).
COBRA allows eligible employees and their dependents to prolong health insurance benefits, albeit at their own expense. It permits coverage continuation for a maximum of 36 months, subject to specific conditions. The associated expenses are notably high.
This is attributed to the fact that the erstwhile employee is responsible for covering the entire cost of the insurance. Typically, employers contribute a portion of healthcare premiums on behalf of their staff.
A Part-Time Employee
Health benefits are seldom provided with part-time positions. Part-time employment generally entails working fewer hours than the full-time threshold established by the employer, typically set at 40 hours per week.
Individuals engaged in part-time work are generally required to independently enroll in their health insurance coverage.
AA business owner
Starting a business with employees may necessitate the provision of health insurance. Even if it’s not mandated, opting to offer health coverage can enhance your competitiveness as an employer, making you more appealing to skilled job candidates.
In such instances, obtaining a business health insurance plan, commonly referred to as a group plan, becomes obligatory.
Retired (spouse or parents)
Upon retirement, eligibility for employer-sponsored health insurance typically ceases. If you’re under 65 and not disabled, procuring individual private health insurance becomes necessary until you reach the age of 65.
Many retirees opt for additional coverage through private Medigap or Medicare Advantage plans to ensure more extensive protection. Some retirees may even choose to replace Medicare entirely with a private Medicare Advantage plan.
If your family was previously covered under your employer’s plan and you retire, family members may need to enroll in individual insurance plans.
Conclusion
The term “private” in private health insurance means privately operated health insurance companies, distinct from government-administered programs such as Medicare and Medicaid.
Despite being privately run, most forms of private health insurance are subject to an array of state and federal regulations, ensuring compliance with standards even though the entities selling the coverage are privately owned.