Health insurance is essential to help cover the cost of medical care. Without it, bills for preventative care, emergency medical services, and even routine procedures can add up quickly. Selecting an insurance plan from the many available options may leave you feeling confused. This guide explains everything you need to know about private health insurance so you can choose a policy that meets your needs and aligns with your budget.
What Is Private Health Insurance?
The majority of Americans have medical insurance plans obtained through a private entity instead of a government program like Medicare, CHIP, or Medicaid. The most common private health insurance policies are employer-sponsored group plans and individual plans purchased through an agent or broker. There are no eligibility requirements to get private health insurance, meaning no company can refuse you a policy or charge you higher premiums due to a pre-existing health condition.
What Benefits Does Private Health Insurance Include?
The minimum essential coverage implemented by the Affordable Care Act refers to plans that meet federal or state mandates. There is no longer a federal penalty for not meeting this requirement, but some states still enforce it.
The ACA also requires small group and individual plans to include these 10 essential benefits:
- Emergency services
- Ambulatory services
- Maternity and newborn care
- Mental health and substance abuse
- Preventative services
- Prescription drugs
- Lab tests
- Pediatric services, including dental and vision
- Rehabilitative and habilitative services
The ACA divides policies into categories with a metal ranking to explain benefits and coverage:
- Bronze plan members pay about 40% of all medical costs
- Silver plan members pay 30%
- Gold plans are responsible for 20%
- Platinum plan members pay 10%
All ACA plans limit the out-of-pocket expenses for 2022 to a maximum of $8,700 for individuals and $17,400 for families.
Private employer-sponsored large-group plans are not required to meet these essential benefits of the ACA. Instead, mandates require them to provide affordable coverage that meets the minimum value standard, which is 60% or more of the average cost of medical services, plus physician visits and outpatient care. This is the equivalent of a bronze-level plan on the marketplace.
Types of Private Health Insurance
There are several avenues to follow to enroll in a private health insurance plan.
Employer-sponsored health insurance is the main way that individuals get private health insurance. The employer selects the group plans and offers coverage to qualified employees and their dependents. You have the option to sign up or decline this coverage. Most employers pay a share of the premium cost, but employees are typically required to contribute as well. Your contributions are pre-tax, meaning they lower the amount of your taxable income.
Going through a licensed agent is a popular choice because you have the advantage of working with a knowledgeable professional who helps you find the best policy for your needs and budget. They act as your personal shopper to research and review all of your options and help you to understand the policy terms so you can make an informed choice.
State or Federal Marketplace
Another way to buy your private insurance plan is through a state or federal marketplace. These marketplaces serve as a platform for consumers to compare individual and family health insurance plans. They give you the advantage of viewing plans offered by all the insurers available in your area, saving you time and making shopping for health insurance more convenient.
Consumers must sign up for a plan or change their coverage during the open enrollment period that runs each fall from about November 1 to January 15. Depending on when you purchase your policy, coverage begins on January 1 or February 1. The only other time to enroll in a private health insurance plan through the marketplace is if you experience a qualifying life event. In these circumstances, you have 60 days or more to find a new policy. Qualifying events that trigger open enrollment can include:
- Loss of other insurance coverage
- Permanent move
- Birth of a child
- Marriage or divorce
- Income change that affects eligibility
- Becoming a U.S. citizen or permanent resident
Some government-run private health insurance plans offer subsidies that reduce the monthly premium. The subsidy works on a sliding scale and is based on income, so not every applicant is eligible.
Qualified individuals can choose to enroll in catastrophic coverage. It’s important to note that these limited policies help cover the high costs associated with accidents, injuries, and severe illness. They are not meant to take the place of routine health care.
Most individuals who choose catastrophic coverage are young, healthy, and can’t afford a typical qualified health care policy. While a catastrophic policy may offer similar benefits as a qualified plan, you must first meet a high yearly deductible, normally thousands of dollars, to get access to this coverage.
Short-term plans fill in the brief gaps between policies. If you leave a job and opt out of COBRA insurance due to high premiums, a short-term plan can provide coverage until your policy at your new job goes into effect.
There are limits to the length of time you can enroll in a short-term plan. Federal law caps the initial term at 364 days, with the option to renew the policy for no longer than 36 additional months. State laws vary and can alter these terms.
Understanding Common Terminology
When you are shopping around for a health insurance policy, there are some terms that it’s beneficial to know:
- Premium: The term for the dollar amount that your health insurance charges you to keep your coverage active.
- Deductible: The annual amount you are personally responsible for paying out-of-pocket before your insurance company begins to pay for services.
- Copayment: Also called a copay, this is the fee you pay each time you receive a covered medical service, such as a visit to your primary care physician.
- Coinsurance: The percentage of medical service costs you pay after meeting your deductible.
- Out-of-pocket maximum: This is the max amount of money you are responsible for paying during your benefit year.
- In-network provider: Health care providers included in your insurance plan’s network of preferred providers. In-network services generally cost less than services received at out-of-network providers.
Health insurance terminology is one of the first things you should familiarize yourself with when looking for a new policy to help you navigate your choices.
Find the Policy That Is Best for Your Needs
If you opt for a plan with a low monthly premium, you are responsible for higher deductibles and high out-of-pocket costs if you end up needing care. Higher premiums generally mean your deductible and out-of-pocket expenses for care are low. Everyone has individualized requirements when it comes to health insurance. To find the best policy, consider your coverage needs, current overall health, premium price, and the availability of in-network providers to get the most value from your chosen policy.
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