What Is Generic Commercial Health Insurance?
Understand the fundamentals of private health insurance, including how it works, its costs, and common ways to get coverage.
Health insurance is a contract where an individual or entity pays regular amounts, known as premiums, to an insurance company. In return, the insurer covers a portion of the policyholder’s medical costs. This arrangement helps mitigate the financial impact of illnesses, injuries, and preventive care needs.
Defining Commercial Health Insurance
Commercial health insurance is health coverage provided by private companies, which can be for-profit or non-profit. It is the predominant source of health coverage in the United States.
Unlike public programs such as Medicare or Medicaid, commercial plans are market-driven. Individuals can purchase plans directly or receive them through employers.
Key Financial Components
Commercial health insurance plans involve several financial terms that define how costs are shared between the insured individual and the insurance company. The first of these is the premium, which is the regular payment made to the insurance company to keep coverage active. This payment is typically monthly.
Another important component is the deductible, the specific amount an insured person must pay for covered medical services before the insurance plan begins to contribute to costs. For example, if a plan has a $1,000 deductible, the policyholder is responsible for the first $1,000 of covered expenses before the insurer starts paying. After the deductible is met, copayments and coinsurance come into play. A copayment, or copay, is a fixed amount paid for a covered healthcare service at the time of service, such as a doctor’s visit or prescription fill. These fixed fees can vary by service, with different amounts for primary care visits versus specialist consultations or emergency room visits.
Coinsurance is a percentage of the costs for a covered healthcare service that the insured pays after their deductible has been satisfied. For instance, an 80/20 coinsurance arrangement means the insurer pays 80% of the cost, and the policyholder pays the remaining 20%. Both copayments and coinsurance contribute towards the out-of-pocket maximum, which is the highest amount an insured person will have to pay for covered services in a policy year. Once this annual limit is reached, the insurance company typically pays 100% of all subsequent covered healthcare costs for the remainder of that policy year.
Common Plan Structures
Commercial health insurance offers various structural models, differing in provider networks, referral requirements, and flexibility. One common type is a Health Maintenance Organization (HMO). HMO plans typically require members to choose a primary care physician (PCP) from within the plan’s network, who then coordinates all medical care. Referrals from the PCP are usually necessary to see specialists or receive other medical services, and coverage is generally limited to in-network providers, except in emergencies.
A Preferred Provider Organization (PPO) plan offers more flexibility compared to an HMO. PPOs have a network of preferred providers, and policyholders pay less when they use in-network doctors and facilities. However, PPO plans allow members to seek care from out-of-network providers, though this usually results in higher out-of-pocket costs. Unlike HMOs, PPO plans generally do not require a referral from a PCP to see a specialist, providing more direct access to specialized care.
Exclusive Provider Organization (EPO) plans combine features of both HMOs and PPOs. EPOs operate with a specific network of providers, and care is only covered if received from within this network, except in emergency situations. EPOs typically do not require a primary care physician or referrals to see specialists within the network, offering a balance of cost control and direct access to specialized care.
Point of Service (POS) plans blend aspects of HMO and PPO models. Similar to an HMO, POS plans often require members to select a PCP and obtain referrals for in-network specialist care. However, like PPOs, POS plans allow for out-of-network care, though at a higher cost to the policyholder. This structure provides a degree of flexibility for those who might occasionally need to use providers outside the network, while still encouraging cost savings through in-network utilization.
How Commercial Plans are Accessed
Individuals and families typically obtain commercial health insurance through a few primary avenues. The most prevalent method is employer-sponsored plans, where employers offer health benefits as part of compensation. These plans cover a significant portion of the population and often involve employer premium subsidies, making coverage more affordable. Employers may purchase small-group or large-group coverage, or even self-insure, paying claims directly.
Another way to access commercial health insurance is through the individual market. Individuals purchase plans directly from private insurance companies. Plans can also be acquired through state or federal health insurance marketplaces, or exchanges, established under the Affordable Care Act (ACA). These marketplaces provide a platform for individuals to compare and enroll in various commercial health plans. While eligibility for premium tax credits through the marketplaces can depend on whether affordable employer-sponsored coverage is available, commercial insurers remain the providers of these individual plans.