There is a lot of news in the media today about Medicare, Medicare Advantage, federal or state marketplaces for purchasing health insurance, and government subsidies to reduce the cost of health insurance for many Americans. And the volume of news increases significantly in the fall of each year when Medicare and individual health insurance offered on the marketplace (alternatively referred to as the “exchange”) have their respective annual enrollment periods.
It’s perfectly understandable if you are asking yourself questions such as “What is private health insurance?” or “What’s the difference between private vs. public insurance?” or “What do I have (or should I have) private healthcare coverage or public health insurance?” Let’s take a closer look at health insurance so that you can make informed decisions about your health insurance options. Then you can move forward with confidence to choose a plan that meets your needs.
Public vs private health insurance
In 2021, private health insurance coverage continued to be more prevalent than public coverage, at 66 percent and 35.7 percent, respectively, according to the U.S. Census Bureau.
What is public insurance?
Public health insurance is government-sponsored. The federal government, state government, or a combination of state and federal government runs these health insurance programs. Public health insurance programs are funded largely from tax-payer dollars put in trusts that are used to pay eligible medical expenses and or the cost of prescription drugs. Public health insurance is available to some U.S citizens and permanent legal aliens. In addition to military and Native American Indian health insurance, the three of the most common public health insurance options include:
- Medicare, a federal insurance program available to people age 65 or older, younger people with disabilities, and people with End Stage Renal Disease (permanent kidney failure requiring dialysis or transplant.
- Medicaid, a state-run public healthcare assistance program for low-income individuals and their families. People enrolled in Medicaid pay significantly reduced amounts (for example, $2 copayment) when they receive care from providers who participate in Medicaid.
- The Children’s Health Insurance Program (CHIP), a state-run insurance program that provides low-cost health coverage to children in families that earn too much money to qualify for Medicaid but not enough to buy private insurance. In some states, CHIP covers pregnant women.
You must meet specific eligibility requirements to enroll in Medicare, Medicaid, or CHIP. Eligibility rules for state-run Medicaid and CHIP programs vary by state. That said, it is possible to qualify for and receive coverage under multiple programs. For example, a lower-income senior may qualify for Medicaid and Medicare. Or you might have private health insurance for yourself through an employer and enroll your children in CHIP because your employer doesn’t offer affordable dependent coverage for your children and you can’t afford to buy them a private health insurance policy.
It’s not uncommon for federal or state government agencies (e.g., the Centers for Medicare & Medicaid Services or a state’s Department of Health) to contract with a private insurer to administer the Medicare, Medicaid, or CHIP plan. That can be confusing to consumers when they see the name United Healthcare or Anthem or Humana, to name a few, associated with their Medicare Advantage plan or Medicaid coverage. But if you are exploring coverage through these public healthcare options, the government agency will explain and determine your eligibility for coverage and the materials you receive will explain the public health insurance program and who is managing its daily operations.
What is private insurance?
Private health insurance refers to health insurance plans marketed by the private health insurance industry, as opposed to government-run insurance programs. Private health insurance currently covers a little more than half of the U.S. population.
Who is covered by private insurance?
Private health insurance includes employer-sponsored plans, which cover about half of the American population (155 million as of 2020) reports the Kaiser Family Foundation. Another 6% (approximately 18 million as of 2020) of Americans purchase private coverage outside of the workplace in the individual/family health insurance market, both on and off the marketplace/exchange.
Who regulates private insurance?
While it is not run by the government, private health insurance is highly regulated at both the state and federal level. Regulations and laws often address what healthcare services must be covered by group and individual health plans. For example, maternity coverage and mental health parity are just two of the long-standing regulatory requirements for private employer-sponsored group health plans. Also most employer-sponsored private health insurance plans and individual/family plans purchased by consumers offer benefits that meet the minimum essential coverage requirements of the Affordable Care Act (ACA; also known as Obamacare). Other plans, such as short-term, fixed indemnity, vision, dental, and critical illness policies offer benefits, usually at a low cost, but they are not as comprehensive as ACA-compliant medical plans, and they do not count as a qualified health plan under the ACA.
How is the cost of private insurance determined?
Insurance companies set their premiums. Premiums are the price (usually monthly) you pay in exchange for coverage by the insurer’s plan. States typically set caps on how much insurance companies can raise premium rates each year. The cost to purchase private health insurance –that is, the premium—varies widely. Factors that influence premium cost include:
- the private health insurance plan you choose (how comprehensive the coverage is and how much you share in the cost for covered services),
- the insurer you choose,
- the number of individuals covered under the plan, and
- the region in which the plan is purchased.
For individual purchasers, age and tobacco status also factor into the cost of coverage.
For people who get their private health insurance through an employer, employers tend to cover at least 50 percent of the premium costs. Usually these are pre-tax dollars, which often reduce taxes for those who are covered by the plan. Those who purchase their private health insurance on the marketplace/exchange may find they are eligible for premium tax credit subsidies and other cost-sharing reductions.
When might you need to buy private health insurance?
If you are not enrolled in an employer-sponsored private health insurance plan through your work or a spouse’s employer, and you aren’t eligible for public health insurance, such as Medicare or Medicaid, you will need to purchase private health insurance. You have many choices. Your particular circumstances may make one type of private health insurance more attractive than another. Take a look at three of the most common options in private health insurance for individuals and their families.
Individual/family private health insurance.
Individual health insurance may be your best option in these circumstances:
- If you are single or if your spouse’s private group health insurance coverage is unavailable or unaffordable, and
- You recently lost your job and your employer-sponsored group health insurance, and you cannot afford COBRA (Consolidated Omnibus Budget Reconciliation Act).
- COBRA allows eligible former employees and their dependents the option to continue group health insurance coverage at their own expense for a period of time, usually up to 36 months. It can be expensive, especially if the plan provides comprehensive coverage, including prescription, vision, and dental.
- You are self-employed.
- You work part-time and you are not eligible for your employer’s group health insurance.
- You are turning age 26 when you will no longer be covered as a dependent on your working parent’s private health insurance plan.
- Your spouse (or parent) enrolls in Medicare and you lose dependent coverage when the private health insurance plan terminates.
If you purchase insurance through the marketplace/exchange, you may be eligible for Affordable Care Act subsidies such as premium tax credits or cost-sharing reductions, which can substantially lower your private healthcare costs. The marketplace is an online platform that offers insurance plans to individuals, families, and small businesses. It is run by the federal government, or state government, or through a partnership of both. Keep in mind, however, this is private health insurance, even though the marketplace/exchange for purchasing subsidized or unsubsidized health insurance is government-run. You can also purchase private health insurance through an insurance agent or broker or directly from an insurance company. In these instances, though, you won’t be eligible for subsidies.
Catastrophic health insurance
If you are young and healthy, you may consider catastrophic insurance. A catastrophic policy is available to a limited number of people: generally for adults under age 30; older adults can buy a catastrophic plan if no other qualified health plan offered through the marketplace in 2022 would cost less than 8.09% of their income and they qualify for a “hardship exemption.”
Catastrophic insurance premiums are very inexpensive. While catastrophic coverage offers the same benefits as qualified health plans on the marketplace/exchange, you must meet a very high deductible ($8,700 in 2022, which increases to $9,100 in 2023) before the plan pays for most covered services. The plan will pay for preventive care doctor visits (limited to 3 in the year) before you meet the plan’s deductible.
Short term health insurance
Short-term health insurance may be a good fit if you only need coverage for a brief period. For example, you may be one form or another of transition. Perhaps you are between jobs. Maybe you are recently divorced. Possibly you or your spouse retired, and you have a short wait before you are eligible to enroll in Medicare. Any of these transitional circumstances could make short-term health insurance an affordable option. Generally short-term policies provide coverage for 12 months or less. Some states permit short-term policies to be renewed for up to 36 months.
Under a short-term insurance plan, your spouse, and other eligible dependents may also be covered at relatively inexpensive premiums. However, an important caveat of a short-term insurance plan is that in some cases, preexisting conditions can disqualify you from coverage. Another caveat is that some states prohibit the sale of short-term insurance policies. You can learn more about short-term health insurance from our e-book.
Advantages of working with eHealth
Let eHealth help you navigate your private health insurance choices today at no extra cost! We offer you 24/7 access to review a broad range of private insurance plans –both on and off the marketplace/exchange – and available where you live. You can compare cost and coverage online and in the convenience of your home. But if you want expert assistance, one of our licensed insurance agents can answer your questions and help you find a policy that provides the coverage you need at an affordable price See what health insurance plans are available today!