Private health insurance is any health insurance plan you purchase from an insurance company, either directly or indirectly. It does not include insurance you buy directly from the federal government, such as Medicare, or from state governments, such as Medicaid or the Children’s Health Insurance Program (CHIP). You may find yourself shopping for private health insurance if you no longer have employer-based insurance or if you are a young adult aging out of coverage under your parents’ plan. (Employer-based insurance is private insurance too, but this article is focused on private insurance you purchase outside of a job.)
What You Need to Know
Private health insurance is any type of health insurance plan you don’t obtain directly from the government.
There are many types of private insurance plans, including health maintenance organizations (HMOs), preferred provider organization plans (PPOs), point-of service plans (POS), short-term insurance and more.
After deciding what type of coverage meets your medical and financial needs, you can purchase private insurance through the Affordable Care Act exchanges, directly from insurers or through a broker or agent.
Why Do You Need Health Insurance?
The average American visits the doctor four times a year. While most of these visits are fairly routine, a large medical bill from a serious illness or injury can quite literally break the bank. In fact, medical bills are one of the leading causes of personal bankruptcy.
In addition, government mandates may dictate that you purchase health insurance. The Affordable Care Act (ACA) originally required every eligible individual to have qualified health insurance or pay a tax penalty. Congress reduced that penalty to $0 in 2017, effectively eliminating the mandate. In the wake of those actions, California, Massachusetts, New Jersey, Rhode Island, Vermont and the District of Columbia passed laws implementing their own mandates and imposing penalties for residents who are not covered.
It’s critical to purchase health insurance to protect yourself from huge medical bills if you or a family member fall ill or have an accident.
What Are the Different Types of Private Health Insurance?
Private health insurance is available through different types of plans, which determine the providers you can see, out-of-pocket costs you’ll pay, and where you can go for service. Here’s a rundown:1
Health maintenance organization (HMO)—Coverage is limited to a network of healthcare providers, typically in a specific geographic area. A referral is usually required to see a specialist or other network provider. Care from providers outside the network is not covered, except in an emergency.
Preferred provider organization (PPO)—Members of these plans pay less when they use network providers. Care outside of the network is covered at an additional cost. No referrals are necessary.
Exclusive provider organization (EPO)—You are covered only if you use doctors, specialists or hospitals in the plan’s network, except in emergencies. EPO networks are usually larger than those for an HMO, and referrals aren’t always necessary
Point of service (POS)—Plan members pay less for care from network providers. Like an HMO, you must get a referral from your primary care doctor to see a specialist.
High deductible health plan (HDHP)—HDHPs are a form of PPO that comes with a high deductible—a minimum of $1,400 for an individual or $2,800 for a family. A deductible is an amount you pay out of pocket for healthcare costs before insurance coverage kicks in. These plans usually charge lower premiums.2
You can combine an HDHP with a tax-advantaged health savings account (HSA) to help pay for qualified medical expenses. You can deduct HSA contributions from your taxes, earnings grow tax-free in the account and withdrawals used to pay for healthcare are not subject to federal taxes.
Indemnity—Also called fee-for-service plans, these allow you to go to any provider, and they reimburse at the usual, customary and reasonable rate (UCR) for your area. There are deductibles, copays and coinsurance under these plans.
Catastrophic—These low premium, very high deductible health plans are designed to help if you get seriously ill or injured, but you’ll usually pay out of pocket for most other healthcare costs. Catastrophic plans are only available to people under age 30 and those of any age with a hardship or affordability exception.3
Short-term health insurance—A short-term plan provides temporary coverage when you are between health plans or outside of enrollment periods. Depending on the state where you live, short-term coverage can last up to 12 months, sometimes with the possibility of renewal for up to 36 months.
Short-term plans may—but do not have to—cover all essential benefits required by the ACA, such as preventive, maternity, and mental health care, as well as treatment for preexisting conditions.4 Deductibles and out-of-pocket costs can be very high.
In choosing a plan, consider your out-of-pocket costs, such as deductibles and copays; whether your doctors are in the plan network (if applicable); and whether the plan covers any medications you take.
How Do I Buy Private Health Insurance?
If you’re buying your own insurance, under the ACA you may be able to purchase a plan through your state’s exchange. You can sign up for exchange coverage during the annual open enrollment period, which usually runs from November 1 through December 15. (Some states have longer enrollment periods.) Or, you may qualify for a special enrollment period—through loss of employer-based insurance or a move to another state, for example—which allows you to purchase coverage at any time.
You can also buy individual plans directly from insurance companies. Check out individual plans on insurance company websites or work with an insurance broker who specializes in individual coverage. You can start your search for a broker or agent at Healthcare.gov.
How Much Does Private Health Insurance Cost?
That depends on where you live, how old you are and how much healthcare coverage you need. Insurers in different states are allowed to set rates taking these factors into consideration.
If you are used to employer-sponsored insurance, keep in mind that when you buy private insurance you will be paying the total amount of your premiums. (Employers pay an average of 83% percent of single employees’ health insurance premiums and 73% of family coverage.5)
Generally, the more a plan covers, the higher your premiums. A plan with a low deductible and low copays and coinsurance will generally have a higher monthly premium. By the same token, a plan with higher deductibles will come with lower premiums.
The same holds true on the exchanges. There are four “metal” levels on the exchanges—platinum, gold, silver and bronze. Platinum comes with the highest premiums and lowest out-of-pocket costs, while bronze includes the high deductible plans with lower premiums. The average benchmark silver plan’s monthly premium for a family of four is $1,486 for 2021 coverage.6
Depending on your income, you may qualify for government-sponsored premium subsidies when you buy insurance through the exchanges. This calculator can help determine if you qualify.
No matter where you buy coverage, if you choose a high deductible healthcare plan, you can open an HSA to help pay for out-of-pocket costs on a tax-free basis.
How Do I Choose a Private Insurance Plan?
There’s more to choosing a plan than the premiums. Consider:
What will my cost sharing be? This includes out-of-pocket costs such as deductibles, copays and coinsurance. What is the plan’s out-of-pocket maximum (the cap on what you’ll have to spend)? Every plan that is ACA-compliant must publish a summary of benefits and coverage (SBC) that you can check to see how the plan covers costs. In addition, most insurers and brokers have tools that can help you compare plan costs.
Are my doctors in the plan’s network? You can ask the insurers or your healthcare providers. If your doctors are not in the network of the least expensive plans, ask yourself which is more important: lowering costs (and changing doctors) or keeping your current providers (and paying higher costs). Remember to check the network for the specific plan, not just the insurer (for example, BlueCard PPO, not just Blue Cross Blue Shield).
Are my medications covered? Most plans have a formulary, a list of drugs that are fully or partially covered under the plan. You can access a plan’s formulary on the insurer’s website or request a paper copy by phone. These lists change from year to year, so it’s important to keep up to date with what’s covered. If your drug isn’t covered, you’ll have to pay the entire cost out-of-pocket.
Purchasing private health insurance that meets your medical and financial needs takes careful weighing of all your options. Think about how you typically use healthcare. Are you generally healthy and only need to go to the doctor for annual checkups? Or do you have a chronic condition that requires regular care? Try to project what the coming year will look like for your and your family’s healthcare needs. From there you’ll want to take into account what’s most important to you, including costs, your providers and your prescription coverage.
Finally, pay close attention to open enrollment and special enrollment period deadlines. You don’t want to miss your window and end up without coverage of any kind.