What Is Commercial Health Insurance? – Forbes Advisor

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Commercial health insurance is how most Americans get their health coverage. This type of insurance often comes through an employer-sponsored health insurance plan, but you can also buy a commercial health plan through other sources like the Affordable Care Act (ACA) marketplace.

Commercial Health Insurance Is Private Insurance

Commercial health insurance, also called private health insurance, is coverage issued by a private company or entity. It is not from government-issued insurance like Medicare or Medicaid.

Commercial health insurance companies include:

  • Aetna
  • Anthem
  • Cigna
  • UnitedHealthcare
  • Humana

More than 66% of Americans have commercial health insurance, mainly through an employer. An estimated 54% get coverage through an employer-sponsored health insurance plan, according to the U.S. Census.

How Does Commercial Health Insurance Work?

How commercial health insurance works depends on how you get coverage. If you get health insurance through your employer, the business contracts with a health insurance company or companies. Employees get to choose between those plans.

If you get individual health insurance through the ACA marketplace, you choose from a list of insurance companies that offer coverage in your area. People who get individual coverage outside of the marketplace decide between plans offered by insurance companies that offer those individual plans.

Commercial health insurance plans work like any other plan. The health insurance companies contract with health care givers to create provider networks, including physicians and hospitals. Those contracts determine how much providers get paid.

Members typically pay a health insurance premium to get health coverage. If you have an employer-sponsored health plan, the employer generally pays most of the premiums.

Here’s the general process when you get health care services:

  • You typically pay a copay to the doctor’s office at the time of the visit.
  • The medical provider’s office files a medical claim to the insurance company.
  • The insurer reviews the claim and pays what it believes it owes to the medical provider. The member then gets billed for the rest of the bill.
  • Health plans usually have health insurance deductibles, which members must reach before insurance companies begin to pay for health care services.
  • Once you reach the deductible, health plans typically have coinsurance. Coinsurance is the percentage that the member splits the bill for health care services with the health insurance company. This could be 20%/80%, 30%/70% or whatever your health plan requires. That may mean you as the member would pay 20% of the health care bill and the insurance company picks up the remaining 80%.
  • You pay coinsurance until you reach the plan’s out-of-pocket maximum, which is the point when the health insurance company picks up 100% of health care service costs.

Where To Buy Commercial Health Insurance

Employer-sponsored health insurance

Most Americans get coverage through their employer’s group health insurance. Employers typically pay well over half of health insurance premiums, which makes it more affordable than getting an unsubsidized ACA marketplace plan or buying an individual health insurance plan directly from an insurance company.

Employers partner with health insurance companies as part of the company’s benefits package. That may mean you only have one or two health plan choices, which may include a high-deductible health insurance plan.

ACA marketplace plan

Obamacare created the ACA marketplace, also called the ACA exchanges. The marketplace allows people to compare available plans and purchase insurance through HealthCare.gov.

The platform is designed to make health insurance easily accessible to individuals and families who may not be able to purchase health insurance from an employer. These plans may offer premium tax credits and subsidies based on your household income.

Individual health insurance plan bought directly from an insurance company

You can purchase commercial health insurance directly through an insurance company. This will likely come at higher rates than you would pay with an employer, but you’re also not limited to only plans offered by a workplace.

These plans may not offer the same coverage found on the ACA marketplace. Health insurance plans purchased directly through insurers also aren’t eligible for premium tax credits and subsidies that help reduce costs of ACA plans for those who are eligible.

Short-term health insurance

Short-term health insurance provides inexpensive premiums and limited temporary coverage.

Short-term plans are meant to bridge a health coverage gap, such as after losing a job. They’re not a long-term health insurance solution. These plans are only available for one year in most states (you may be able to extend it for two more years). Some states do not allow short-term plans while others only allow them for a shorter coverage period.

These plans offer limited coverage. You may have trouble finding a short-term health plan that covers maternity care, prescription drugs and mental health.

But if you don’t expect many medical needs in the coming months and want something in place just in case, a short-term health plan may work for you.

Catastrophic health insurance

Catastrophic health insurance is a safety net insurance for people under age 30 and those facing financial hardship, such as being homeless.

These plans, offered through the ACA marketplace, have low premiums but high deductibles. They also offer comprehensive coverage found in standard ACA plans, including essential health benefits:

  • Emergency services
  • Hospitalizations
  • Lab services
  • Mental health and substance use disorder services
  • Outpatient care
  • Pediatric services, including vision and dental for children
  • Pregnancy, maternity and newborn care
  • Prescription drugs
  • Preventive and wellness services
  • Rehab and habilitative services and devices

These plans have exorbitant deductibles ($8,700 for single coverage and $17,400 for family coverage in 2022), but the health plan pays for all the health care costs after you reach your deductible. A catastrophic health plan doesn’t have coinsurance. That’s a key difference between catastrophic health insurance and a standard health insurance plan.

What Is Not Considered Commercial Health Insurance?

There are many types of government-sponsored health insurance, including Medicare and Medicaid.

The State Children’s Health Insurance Program (CHIP) and TRICARE are also government-sponsored public health insurance plans.

Not everyone is eligible for these plans:

  • Medicare is only for people 65 and over, younger people who are disabled for at least 24 months and people with end-stage renal disease.
  • Medicaid and CHIP are for low-income Americans .
  • TRICARE is for current and retired military members.

What are Common Types of Commercial Health Insurance?

Commercial health insurance plans, whether through an employer or ACA marketplace, are often one of three types of health plan benefit design. A plan’s benefit design dictates whether you can get out-of-network care if you need a primary care provider and whether you need referrals to see specialists.

Here are the three common types of health insurance plans:

Preferred provider organization (PPO) plan

A preferred provider organization (PPO) plan offers the most flexibility. PPOs allow you to get out-of-network care and don’t require you to name a primary care provider or get referrals to see specialists.

You can see any doctor when you have a PPO plan, so you don’t have to stay in the plan’s provider network. You’ll likely pay more when you get out-of-network care, though.

The downside to PPOs is that they’re generally the most expensive type of health plan with the highest premiums.

Who may want a PPO:

  • You want flexibility to get care outside of the provider network.
  • You don’t want to get a referral from a primary care provider to see specialists.
  • You would rather not name a primary care provider to oversee your health care.
  • You don’t mind paying higher premiums knowing that the plan gives you more flexibility.

Health maintenance organization (HMO) plan

A health maintenance organization (HMO) plan is a health plan benefit design that has more restrictions than a PPO, but that also typically comes with lower premiums.

HMOs don’t generally pay for health care received outside of the plan’s network. If you get care outside of the network, you’ll likely have to pay for all the costs unless it is an emergency.

People interested in an HMO should make sure that their providers are on the plan’s network. You probably won’t get reimbursed for care outside of the network, so make sure there’s a wide provider network in your area and that your providers are on it.

HMOs also require that you name a primary care provider who oversees your care. You need to get referrals from that provider to see specialists.

Who may want an HMO:

  • You want to pay the lowest health insurance premiums for comprehensive health insurance.
  • You don’t mind naming a primary care provider to oversee your care or getting referrals to see specialists.
  • Your doctors are on the plan’s network.
  • You’re OK with staying in the provider network to get care.

Exclusive provider organization (EPO) plan

The exclusive provider organization (EPO) plan requires you to stay inside the plan’s network unless it’s an emergency. It’s similar to an HMO in that way.

But an EPO also doesn’t require you to get a referral to see a specialist, so it’s more like a PPO in that respect.

EPO premiums are typically similar to HMO costs.

Who may want an EPO:

  • You don’t want to pay as much as you’ll likely pay for a PPO but still want more flexibility than an HMO.
  • You would rather not have to get referrals to see specialists.
  • Your providers are part of the plan’s network and the network is wide enough that you won’t need out-of-network care.

What Is the Average Cost of Commercial Health Insurance?

The average monthly cost of health insurance on the ACA marketplace for a 40-year-old person is $516 for a PPO, $438 for an HMO and $490 for an EPO.

Unlike an employer-sponsored group health insurance plan, age determines how much someone pays for an ACA marketplace plan. Here are average costs by ACA marketplace plan based on benefit designs, ages and situations:

Average monthly costs for ACA marketplace plans

Most Americans get health insurance through an employer, which is usually more affordable than ACA marketplace plans.

Here are the average monthly premiums that employees pay for employer-sponsored health insurance plans.

Average monthly costs for workplace health insurance plans

How to Buy Commercial Health Insurance

Through work: You can get health insurance through your employer if it’s offered. That’s typically the cheapest health insurance option.

On the ACA marketplace: You can also use the ACA marketplace at Healthcare.gov, which allows you to compare plans available in your area. The marketplace website will request information like household income and family size. With that information, it will provide cost estimates with potential premium tax credit and subsidies taken into account.

ACA plans are the only ones eligible for those cost savings based on your household income. The marketplace is also where you can get a catastrophic health insurance plan if you’re eligible.

Directly from a health insurance company: Another option is to search for individual health insurance available directly from health insurance companies. Looking at those plans may give you more options than the ACA marketplace, but they don’t have to meet coverage requirements found on the marketplace. Plans purchased directly from an insurance company also don’t qualify for ACA subsidies and premium tax credits.

If you’re looking for a low-cost, temporary health plan, you can buy directly from an insurance company that offers those plans. Those plans don’t offer comprehensive coverage like a standard health insurance plan and they also have higher out-of-pocket costs when you need care. Keep that mind if you’re thinking about a short-term health plan.

How Can You Get Cheap Commercial Health Insurance?

Employer-sponsored plans are often the cheapest because the rates are shared among the employer and the insured. But you could qualify for cheaper health insurance if you’re eligible for tax credits and subsidies via the ACA. Under the ACA, you can earn subsidies when your income falls between 100% and 400% of the federal poverty level. Exactly how much you pay depends on the size of your family.

Short-term health insurance is another option, but it will only cover you temporarily and coverage will be minimal. Catastrophic health insurance may also be a possibility for people under 30 and those facing financial hardships. Those plans also have high out-of-pocket costs when you need care, but they’re comprehensive health insurance that offer the same coverage as a standard ACA plan.

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