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HEALTH Insurance
HEALTH INSURANCE INSIGHTS

Private health insurance is coverage you can buy either through the health insurance marketplace or individual health insurance from private insurance companies.

Most people pre-retirement get their health insurance from their employer, but there are options for those who are self-employed, don’t qualify for Medicare or Medicaid or don’t have access to group health insurance. Private health insurance is one way to get coverage for yourself and your family.

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 through 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 comprehensive benefits, while plans directly from an insurance company may have fewer benefits.
  • Only ACA plans qualify for cost-saving subsidies.
  • Bronze plans are usually the cheapest private health plans except for catastrophic health insurance and short-term health plans, which not everyone can get.

What is private health insurance?

Private health insurance is insurance coverage available to an individual and family purchased either through the federal health insurance marketplace (offering Obamacare/Affordable Care Act plans) or individual health insurance from private insurance companies on the private marketplace.

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

Many employees and people who work for themselves but don't qualify for government-run insurance like Medicare or Medicaid turn to private health insurance as their only opportunity to get health coverage.

Unless the plan is subsidized by the government, as with some ACA/Obamacare 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 individual 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 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 site.

"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."

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

  • Platinum
  • Gold
  • Silver
  • Bronze

These individual plan metal tiers vary based on 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 under 30 and 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 for those who qualify for certain hardship exemptions," adds Martucci.

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.

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," notes Bartleson.

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

"Plans off 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. "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 flavors -- 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

Research suggests that the average monthly premium for an ACA plan is $456 for individual coverage and $1,152 for family coverage.

"Take this data with a grain of salt; $456 per month as a benchmark, but young and healthy policyholders should expect to pay far less for a basic policy, while older policyholders with pre-existing health conditions should expect to pay far more," Martucci notes.

According to the Urban Institute's latest findings, the US average benchmark premium for a Silver ACA marketplace plan held by a 40-year-old nonsmoker in 2021 is $443 per month, down from $451 tallied last year.

The average premium cost for a private marketplace plan may be higher or lower, based on different factors. For instance, New York plan costs an average $575 compared to Florida, which costs $449 on average per month.

Average health insurance cost by state

Here are 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 plans?

The least expensive private health insurance option is a catastrophic health plan if you qualify. Otherwise, the cheapest 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 earlier this year 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 Obamacare. With these changes, for a limited time, ACA plan enrollees will pay no more than 8.5% of their income toward coverage versus 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 explains.

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 a 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 through Aug. 15, 2021, in most states, or beginning again Nov. 1 each year.

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 versus 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 -- meaning Medicare or Medicaid.

"Medicare is generally more cost-effective for Americans over age 65, the vast majority of whom qualify for Medicare," says Martucci. "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.

Curious what is the cheapest private health insurance? Overall, it's a catastrophic plan, which doesn't have to be purchased on the Obamacare exchange but offers extremely limited coverage.

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.

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