What Is Commercial Health Insurance?
Commercial health insurance is health insurance that is sold and administered by a private company rather than provided by the government. Such private insurance is the major source of health coverage in the United States, accounting for more than 68% of the population in 2022.
Understanding Commercial Health Insurance
Commercial health insurance policies are primarily sold by for-profit insurance carriers. While policies can vary widely in the amount and types of coverage they provide, they fall into two basic categories.
The largest segment of the commercial health insurance market consists of group coverage, often purchased by employers for their employees or associations for their members.1 Because employers typically cover at least a portion of the premiums, this is usually a cost-effective way for employees to obtain health coverage. Employers are often able to get attractive rates and terms because they negotiate contracts with insurers and can offer them a large number of policy customers, including many who are young and healthy.
A smaller segment involves direct-purchase policies, bought by consumers as individuals. Direct purchase policies can be obtained through agents, from insurance companies, or through the Health Insurance Marketplace established by the Affordable Care Act, also known as Obamacare.1
The term “commercial” distinguishes these types of policies from insurance that’s provided through a public or government program, such as Medicaid, Medicare, or the Children’s Health Insurance Program (CHIP).
Health insurance provided and/or administered by the government is mainly funded through taxes, although individual participants may also contribute through premiums and copays. It is typically reserved for particular groups, such as older Americans (Medicare), low-income patients (Medicaid), and ex-military personnel (Veterans Health Administration programs). Other examples of government-sponsored insurance include the Indian Health Service (IHS), the State Children’s Health Insurance Program (SCHIP), and TRICARE.2
$24 Billion
The net income of the U.S. health insurance industry as of mid-2023, according to the National Association of Insurance Commissioners (NAIC). This is a increase of 6% over the previous year.3
Types of Commercial Health Insurance Plans
Many commercial health insurance plans today are structured as either a preferred provider organization (PPO) or health maintenance organization (HMO), the two most common types of managed care plans. The main difference between these two types of plans is that an HMO generally requires patients to use providers and facilities within the carrier’s network if they want insurance to cover the costs (except in an emergency), while a PPO lets patients go outside the network (though their out-of-pocket costs might be greater).4
In addition, HMOs typically require patients to choose one primary care physician, who serves as the central provider and coordinates the care that other specialists and healthcare practitioners provide. Referrals from the primary doctor are often necessary to see a specialist.5
Insurance companies often offer both PPO and HMO plans and several of each type, with different costs and levels of coverage.
They may also offer other types of coverage, such as point-of-service (POS) plans and exclusive provider organizations (EPOs). Point-of-service plans vary their reimbursement levels depending on where the patient obtains services, paying more within a certain network and less outside of it. Exclusive provider organizations are just what they sound like: patients must obtain their services from a specific set of practitioners and hospitals, except in an emergency, if they want to be reimbursed by the insurer.6
Finally, though increasingly rare, are traditional fee-for-service health insurance plans, which provide the same level of reimbursement regardless of where the patient obtains services.
Regardless of the type of plan, the federal government and state insurance regulators have rules on what the plans are required to offer and how the companies that sell and administer them must operate. These laws also establish mandates for how and when insurers must pay invoices and reimburse providers and patients, as well as the amount of funds the insurer must keep in reserve to have sufficient capital to pay out benefits.
What Is the Difference Between Commercial and Private Health Insurance?
Technically, there is no difference: commercial health insurance is provided by private issuers—as opposed to government-sponsored health insurance, which is provided by federal agencies. Commercial insurance may be sponsored by an employer or privately purchased by an individual. Most private insurance providers are for-profit companies, but they can be nonprofit organizations in some cases.2
Is Obamacare Commercial Insurance?
Obamacare (more formally known as the Affordable Care Act) is a federal law that made it possible for individuals to obtain health insurance coverage through state health exchanges or marketplaces. These plans are offered and run by private companies, so technically they are commercial insurance—though they do have to follow some federally mandated guidelines.
What Are Examples of Commercial Health Insurance?
Common types of commercial health insurance include HMOs, PPOs, and POS (point-of-service) plans. Medicare Advantage, Medigap, and other Medicare supplemental plans count as commercial health insurance, too. The term can also broaden from general health insurance to include dental plans and vision plans.7
What Is a High Deductible Health Care Plan?
High deductible health plans (HDHPs) require patients to pay greater out-of-pocket costs, through higher deductibles, but generally have lower premiums than other types of plans. The law allows people with one of these plans to put money in a tax-deductible health savings account (HSA) to cover some of those added costs.
The Bottom Line
Commercial health insurance is health insurance provided by private issuers—as opposed to government-sponsored health insurance, which is provided by federal agencies. Two of the most common types of commercial health insurance plans are the preferred provider organization (PPO) and health maintenance organization (HMO). Most commercial health insurance comes in the form of group coverage, offered by employers.
Although not administered by the government, plan offerings are, to a large degree, regulated and overseen by each state. There are also federal laws.
In choosing among different types of plans, consumers will want to consider their respective costs and whether they offer access to a sufficient network of providers.
credit: investopedia
