Private health insurance refers to health insurance that is not offered by the federal or a state government. Health insurance offered by an employer is the most common example of private health insurance coverage for Americans.
Private vs. Public Health Insurance
Private health insurance can be purchased in a variety of ways. This might be through your employer, a state of federal health insurance marketplace or privately from an insurance company.
Public health insurance is coverage offered by the federal or a state government or a related agency. Common public health insurance programs include:
- Medicare is a popular federal health insurance program for those 65 and over as well some individuals who are younger than 65 and disabled.
- Medicaid is a public health program for low income people run at the state level.
- CHIP which stands for Children’s Health Insurance Program is a part of Medicaid that offers subsidized health insurance at low or no cost.
One of the biggest differences between private and public health insurance is who qualifies. For public health insurance it is generally based on age in the case of Medicare or income in the case of Medicaid and the CHIPs program.
There is a wide range of private health insurance options that may have different eligibility requirements. Coverage offered by an employer may only require that you be an employee of the company to be eligible for coverage. For those looking to obtain private coverage on their own directly through an insurance company, eligibility may be based on your health or other factors.
Types of Private Insurance
A common type of private health insurance is group coverage through an employer. The organization purchases the coverage through an insurance company and then offers it to all employees. The cost may be free to the employee in some cases, in others there may be a cost. The employee can typically add their spouse to the policy and children who are under the age of 26. There will generally be an additional premium for family coverage.
The cost of employer group coverage is generally cheaper than you could purchase privately. Your employer is essentially buying in bulk and gets a “volume discount” so to speak. The other appealing feature of this type of private insurance is that all employees can receive coverage regardless of any health issues they may have. They are not penalized in terms of premium cost for these health issues.
COBRA coverage is a means for those leaving an employer to maintain their group health coverage for up to 36 months. The problem with COBRA coverage is that it can be expensive, typically the insured pays the full cost of the coverage versus having the employer subsidize the cost for active employees.
Individuals who are not covered by an employer’s plan can look for coverage on the Affordable Care Act (ACA) marketplace. A number of states have their own marketplace, with the federal government operating a marketplace for those states who are not covered. The marketplace is a hub for those who are uninsured, small businesses and others in need of coverage to purchase a private policy.
Purchasing insurance privately through a health insurance agent may be an option for some individuals and others needing coverage, especially if their health situation requires coverage options that are out of the ordinary. This option may also be the most expensive, however.
Private Insurance Plan Arrangements
There are several types of private insurance arrangements available. One or more of these might be offered by your plan.
Preferred Provider Option PPO
A preferred provider option or PPO. Under this type of arrangement those who are insured by a plan under the PPO have access to providers who are members of the PPO at reduced rates. You can see an out of network provider, but you will pay more for these services. In looking at a plan that is a PPO you will want to check to see if your doctor or other providers are part of the network.
High-deductible Health Plan
A high-deductible health plan is one that has a higher deductible than most other plans. These high deductible plans will generally have lower premiums as a result. For 2021, the deductibles must be at least $1,400 for an individual and $2,800 for a family. The maximum out of pocket expenses are $7,000 for an individual and $14,000 for a family.
A key advantage of a high deductible plan is the ability to contribute to a health savings account or HSA. This is a medical savings account. Contributions are made on a pre-tax basis and withdrawals for qualified medical expenses can be made tax-free. If the amount in the HSA is not used at the end of the year, it can be carried over to subsequent years. Some people use this feature to make the HSA a savings vehicle for medical expenses in retirement. The annual contribution limits for 2021 are $3,600 for an individual and $7,200 for a family. Those 55 and over can contribute an extra $1,000 for the year.
Health maintenance organization (HMO)
A health maintenance organization or HMO is an option that might be offered as part of your health insurance plan. HMOs require you to choose a primary care physician who essentially is your gatekeeper for referrals to other doctors or providers within the HMO network.
HMO premiums are generally cheaper, but your access to out of network doctors or providers is generally restricted.
These are three examples of the type of care networks and arrangements you might be offered under your private health insurance plan. Choosing the right plan is a function of balancing premiums, deductibles and copays as well as the type of care you need. You will want to look at who is in and who isn’t in the network as well. Like any other financial product, the best option for you will depend upon your situation.