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HEALTH Insurance
HEALTH INSURANCE INSIGHTS

Private health insurance is sold to individuals by health insurance companies. A private health plan can be purchased either directly or through a health insurance marketplace.

Most people get their health insurance from their employer, but if you don’t have an employer heath plan, are self-employed and don’t qualify for Medicare or Medicaid, private health insurance is your best option.

Read on to better understand how private health insurance works, the types of plans available, how much you can expect to pay and where to obtain private health insurance.

KEY TAKEAWAYS
  • People who don't have access to an employer health plan can get a private plan through the Affordable Care Act marketplace or directly from a health insurance company.
  • ACA marketplace plans have to cover a specific list of things and can’t exclude people for pre-existing conditions, while off-exchange plans don’t have the same rules.
  • Only ACA plans qualify for cost-saving subsidies.
  • Bronze plans are usually the cheapest private health plans except regarding catastrophic health insurance and short-term health plans, which not everyone qualifies for.

What is private health insurance?

Private health insurance is individual health insurance available to an individual or family through either the federal health insurance marketplace (Affordable Care Act plans) or directly from private insurance companies.

"Policyholders purchase this type of coverage directly from the insurer rather than through a plan sponsored by an employer, trade association, union or other groups that solicits multiple potential policyholders,” says Brian Martucci, the Minneapolis-based finance editor for Money Crashers.

For some people, private health insurance is the only way to get health coverage.

Unless the plan is subsidized by the government, as with some ACA plans, "private health insurance plans are paid out of pocket by a person or family using a personal bank account with post-tax income. You can choose and customize a private health insurance plan based on your needs," says John Bartleson, owner of Health Benefits Connect.

Types of private health insurance

Similar to individual health plans, there are different types of private health insurance plans available with distinct features.

Health Maintenance Organization (HMO):

HMOs are a type of managed healthcare plan that limits coverage to doctors, clinics and hospitals that are part of the HMO contract.

  • It will not cover out-of-network care unless it's an emergency situation,
  • You’ll need to have a primary care provider (PCP) and need a referral to see a specialist.
  • HMOs generally have lower monthly premiums than other types of coverage.

Prefered Provider Organization (PPO):

This type of health plan allows you to see both in and out of network providers.

  • In-network services are covered at a higher rate, but coverage is still available out of network.
  • Referrals are not required to see a specialist and you don’t have to have a PCP
  • Monthly premiums are generally higher than with an HMO

Exclusive Provider Organization (EPO):

EPO plans combine some of the features of an HMO with those of a PPO

  • Coverage is only provided for in-network care, with the exception of emergencies.
  • You don’t always have to have a PCP and you usually don’t need a referral to see a specialist.

Point of Service (POS):

This type of plan is also a hybrid of an HMO and a PPO, but is a little more flexible on out-of-network care.

  • Like an HMO, you will need to have a PCP to handle care.
  • Out of network care may be covered, but only if an in-network doctor provides a referral.

High Deductible Health Plan (HDHP):

A health plan best suited for younger and generally healthy people who don’t anticipate much need for regular medical care..

  • As the name indicates, this kind of health plan has higher deductibles but lower monthly premiums.
  • The added advantage to this plan is the access to a tax-advantaged Health Savings Account (HSA). The funds from the HSA can be used to pay out-of-pocket costs until the deductible is met.

Where to buy private health insurance

When shopping for a private health insurance policy, you can pick from two main sources offering plans:

  • The federal marketplace
  • Directly from a health insurance company

The federal marketplace offers Affordable Care Act (ACA)-compliant plans available on the federal health exchange at HealthCare.gov. These are often referred to as "Obamacare" plans.

These health plans offer comprehensive covered benefits, including the 10 essential health benefits, such as mental health, prescription drug, outpatient and preventive care. No pre-existing condition exclusions apply, which means you can’t get denied because of your health. The U.S. Department of Health and Human Services has a marketplace exchange website where you can compare plans. About a dozen states have their own marketplace exchange and sites.

"ACA plan premiums are usually very low if you qualify for a payment discount or tax credit based on your household's annual income," Bartleson says. "But if you don't qualify for a subsidy discount, your premiums may be more expensive than other health care options. Also, many of the plans' networks are local HMO plans with limited options and you are usually limited to apply only during the open enrollment period – unless you have a life-changing event like moving, getting married or losing an employer-sponsored health plan."

Types of ACA health plans

The ACA marketplace offers several different types of plans, including:

  • Platinum
  • Gold
  • Silver
  • Bronze

These individual plan metal tiers vary by premium and out-of-pocket and deductible costs. For instance, Platinum and Gold plans offer lower out-of-pocket and deductible costs when you need health care services but higher premiums. Bronze and Silver plans have lower premiums and higher out-of-pocket expenses.

People younger than 30 or those who are facing financial hardship may also qualify for a catastrophic health plan.

"Catastrophic plans have the lowest premiums and highest out-of-pocket costs for care but restrict eligibility to policyholders under 30 or those who qualify for certain hardship exemptions," Martucci says.

Yet another option is short-term health insurance. These short-term plans are often limited to one year with the chance to extend the policy for another two years.

Short-term plans are low-cost with low premiums but hefty out-of-pocket costs. Some states don't allow short-term plans while others restrict the plans' length.

How do I choose a private health insurance plan?

Choosing the right private health insurance plan for you and your family is an important decision, so take your time and consider your options. Consider all of the following steps as you figure out which plan is right for you.

  1. Decide where you’d like to buy health insurance. You can purchase an ACA plan through the federal healthcare marketplace, or you can shop directly with insurance companies. An insurance agent or broker can help you if you decide to buy an off-exchange plan (a plan that isn’t on the marketplace).
  2. Consider what you want to pay each month vs. out-of-pocket costs. As a general rule, the more you pay each month, the less you can expect to pay for deductibles, copays and coinsurance. Finding a balance that works for you between the monthly premium and the out-of-pocket costs will narrow down your choices.
  3. Consider health plan networks and whether you need out-of-network coverage. The network refers to the medical providers and facilities your health plan has contracted with to provide you with the health care needed. The larger the network of a health plan, more the choices available for you to choose from.You’ll also need to decide if you’re OK with an HMO’s in-network restrictions, or whether you want the flexibility of a PPO to go out of network.

Plans available directly from health insurance companies

The ACA marketplace isn't the only place to turn for health insurance. You can also price out individual health insurance coverage options directly from health insurers like Aetna, Cigna and Blue Cross Blue Shield.

"With direct private plans, your premiums may be less expensive than for an unsubsidized ACA plan. You can typically apply for coverage outside of the open enrollment period, doctor and hospital networks are usually PPOs available nationwide and there's a wide array of options you can choose from to tailor coverage that best suits the needs of you and your family," Bartleson says.

Overall, private policies usually offer more choices when it comes to providers and plan types.

"Plans of the ACA marketplace tend to have less-strict rules. They can often be a little cheaper and tend to be curated offerings to particular subsets of the population," says Marshall Darr, vice president of marketing for Decent, an ACA-compliant health insurance provider. "Realize that you may have to pass medical underwriting requirements to qualify for a private plan, however."

Be aware, as well, that many of these private marketplace plans may not cover all health/medical conditions or provide the same level of built-in protections as Obamacare plans.

As with federal marketplace plans, private marketplace policies usually come in different option – like PPO, HMO or POS – and tiers such as Platinum, Gold, Silver and Bronze.

How much is private health insurance?

What you'll pay for a private health insurance plan depends on many factors, including:

  • Your income and age
  • Number of people on the plan
  • Insurance company
  • State of residence
  • Plan type (HMO vs. PPO, etc.)
  • Plan tier (Platinum vs. Bronze, etc.)
  • Benefits

According to the Kasier Family Foundations 2022 study, the average U.S. benchmark premium for a Silver ACA marketplace plan is $438 a month. The benchmark refers to the second-lowest cost Silver plan for a 40-year-old.

The average premium cost for a private health plan may be higher or lower, based on different factors. For instance, New York plan costs an average $592 compared with Florida, which costs $456 on average per month.

Average health insurance cost by state

Here is the state average benchmark premiums for a Silver plan for a 40-year-old nonsmoker, according to the Urban Institute:

StateAverage monthly premium
Alabama$550
Alaska$674
Arizona$411
Arkansas$387
California$397
Colorado$351
Connecticut$519
District of Columbia$384
Delaware$522
Florida$449
Georgia$442
Hawaii$467
Idaho$494
Illinois$413
Indiana$398
Iowa$474
Kansas$469
Kentucky$444
Louisiana$492
Maine$430
Maryland$339
Massachusetts$355
Michigan$335
Minnesota$292
Mississippi$457
Missouri$462
Montana$434
Nebraska$579
Nevada$387
New Hampshire$325
New Jersey$367
New Mexico$329
New York$575
North Carolina$489
North Dakota$410
Ohio$358
Oklahoma$485
Oregon$418
Pennsylvania$440
Rhode Island$328
South Carolina$471
South Dakota$575
Tennessee$451
Texas$410
Utah$463
Vermont$574
Virginia$470
Washington$374
West Virginia$641
Wisconsin$432
Wyoming$782

What is the cheapest private health insurance plan?

The cheapest private health insurance option is a catastrophic health plan with an average monthly premium of $195 if you qualify. Otherwise, the least expensive private health insurance plan is a Bronze plan. These plans have the lowest premiums but also have the most out-of-pocket costs when you need care.

You can also save money on private health insurance if you qualify for a subsidy on an ACA plan. To be eligible, your household income must be one to four times the federal poverty level. If you qualify for a subsidy, the government will pay a certain portion of your premium directly to your health insurance company. Or, if you didn't claim the subsidy during the tax year in which you qualified for it, you can claim that subsidy on your tax return to decrease your tax liability or increase your tax refund.

Here's some good news: The government's $1.9 trillion COVID relief bill enacted in 2021 increased the amount of subsidies for two years and made more Americans eligible for subsidies. The bill also extended the open enrollment period, making it easier to apply for coverage. With these changes, for a limited time, ACA plan enrollees will pay no more than 8.5% of their income toward coverage compared with nearly 10% previously and low- to no-income policyholders will pay nothing for their premiums thanks to enhanced subsidies.

"For families now earning up to 150% of the federal poverty level, the American Rescue Plan effectively eliminates premiums for benchmark Silver marketplace plans through 2022," Martucci says.

When comparing health plans, make sure to take into account deductibles and other costs. Don't solely make your health insurance decision based on premiums or copays. Also, look at deductibles, coinsurance and out-of-pocket maximums.

Remember that health insurance isn't one-size-fits-all. Instead, find a plan that meets your needs.

Where to buy private health insurance

You can purchase an ACA plan at Healthcare.gov during the open enrollment period. In most states that begins on Nov. 1 each year. The end date varies by state.

You can buy a private marketplace plan directly from an insurance company or insurance broker at any time. Search online for carriers and brokers and compare several different plans and premium costs to find the right product for you.

Private vs. public health insurance

Private health insurance, offered through the ACA federal marketplace or directly from private health insurance companies, is different from public health insurance – Medicare or Medicaid.

"Medicare is generally more cost-effective for Americans over age 65, the vast majority of whom qualify for Medicare," Martucci says. "Medicaid, on the other hand, is a free or very low-premium health insurance option for low-income Americans and is a very good deal for those who qualify. But eligibility requirements vary significantly by state and in many places are restrictive to the point of excluding all but the most vulnerable people."

Frequently asked questions

Is Obamacare cheaper than private insurance?

Currently, ACA federal marketplace plans are often less expensive than private marketplace plans offered directly by an insurance company. That's thanks to enhanced subsidies now provided by the federal government to individuals and families who qualify.

What is the benefit of private health insurance?

The advantage of choosing a private health insurance plan versus a group health insurance plan offered by your employer is that you will likely have a wider range of choices in terms of insurance companies, plan types, tiers, networks and various options from which to choose. Also, if you qualify for an ACA federal marketplace plan at HealthCare.gov, you may get some or all of your premiums paid for by the government, depending on how much you earn.

Sources:

HealthCare.gov. “The types of private health plans.” Accessed July 2022

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