What Is Commercial Health Insurance – Overview and Terms

Commercial health insurance is a type of health insurance offered by private insurance companies. Unlike Medicaid and Medicare, it is not government-sponsored. Individuals or businesses can purchase it.

Commercial health insurance plans provide individuals and families with financial protection against the high cost of medical care. It also enables businesses to provide employees with medical benefits and can be a tool for attracting and retaining top talent.

The main downside of commercial health insurance is that it can be quite expensive. Also, some plans offer limited coverage, and you may be required to pay deductibles, copays, and coinsurance to receive coverage.

How Does Commercial Health Insurance Work?

Commercial health insurance works by providing financial protection against the cost of medical care. When you enroll in a commercial health insurance plan, you pay premiums to your insurance company regularly (usually monthly). In exchange, the insurance company will cover a portion or the entire cost of your medical care when you need it.

The specific way that commercial health insurance works will depend on the type of plan you have. Some plans, such as HMOs and EPOs, require you to choose a primary care physician responsible for coordinating your healthcare.

Other plans, such as PPOs and POS plans, allow you to see any provider you choose without needing a referral.

Types of Commercial Health Insurance

There are different types of commercial health insurance plans. Each type has specific eligibility criteria, scope of coverage, and set of rules. Below is a look at the most common commercial health insurance plans.

HMO (Health Maintenance Organization)

An HMO health plan typically requires you to choose a primary care physician responsible for coordinating your healthcare. You also can only seek treatment from a specific network of providers except in the case of a medical emergency. Generally, HMOs may have lower premiums and out-of-pocket costs than other health insurance plans, but they also have more limited coverage.

PPO (Preferred Provider Organization)

A PPO is a private health insurance plan that allows you to see any provider within the network of hospitals, doctors, and health care providers.

You do not need a referral or pre-approval to seek the covered medical services. If you are allowed to seek medical services out of the network, you will typically pay more out-of-pocket. Otherwise, PPOs generally have lower copayments and deductibles for providers within the network. On the downside, PPOs have higher premiums.

POS (Point of Service)

A POS is a type of private insurance plan that is a hybrid between an HMO and a PPO. It provides a network of preferred service providers. However, you can seek medical services out of the preferred network at an additional cost. The plan may also require a primary doctor who refers you to specialists if necessary.

EPO (Exclusive Provider Organization)

An EPO is similar to an HMO in that you are only covered for treatment from providers within the EPO network. However, unlike an HMO, an EPO does not have a primary care physician requirement and does not typically cover out-of-network treatment except in emergencies.

EPOs may have lower premiums and out-of-pocket costs than other health insurance plans, but they also have more limited coverage. If you choose an EPO, it is essential to ensure that the plan’s network of providers includes the doctors and hospitals you need.

High-Deductible Health Plan

A high-deductible health plan (HDHP) may be a suitable option if you are looking for a lower-premium commercial health insurance plan. It has much lower premiums than traditional health insurance plans. However, you will be required to pay a higher out-of-pocket cost for covered medical expenses before your insurance begins to pay.

HDHPs may be a good option for people generally in good health and who do not expect significant medical care expenses.

It is recommended to pair HDHPs with a tax-advantaged account called a Health Savings Account (HSA). An HSA enables you to set aside money on a tax-free basis to pay for qualified medical expenses. You can use the money to pay for your deductible, copays, and other out-of-pocket medical expenses.

Private Fee-For-Service

Private fee-for-service (PFFS) is a type of indemnity offered by commercial insurance companies against the cost of medical care.

It offers flexibility as you can see any provider you choose that agrees to the plan’s terms. The insurance company pays the health care provider directly, and you are responsible for any extra costs.

Although PFFS plans have lower premiums than other private health insurance plans, they have higher out-of-pocket costs. Also, coverage may be limited to specific medical care services.

Group vs. Non-Group Commercial Health Insurance

Group health insurance is commercial health insurance provided to a group of people, typically through an employer or other organization.

Group health insurance plans are often less expensive than individual health insurance plans because they can spread the risk of healthcare costs among a larger pool of people.

Non-group health insurance, also known as individual health insurance, is one that an individual purchases rather than a group. Non-group health insurance plans are usually more expensive than group health insurance plans because they do not have the same risk-sharing benefits.

Both group and non-group health insurance plans can be provided by private insurance companies and may come in different types, such as HMOs, PPOs, POS plans, and EPOs. The specific coverage and costs of group and non-group health insurance plans will vary depending on your chosen plan.

What Does Commercial Health Insurance Cover?

Commercial health insurance coverage varies from plan to plan. However, most plans cover the following:

• Primary care services
• Doctor’s visits
• Hospital stays
• Emergency care
• Prescription medications
• Testing and diagnostic services
• Mental health treatment services
• Behavioral health treatment
• Preventive care services, such as screenings and vaccines

Some private health plans offer additional benefits such as dental and vision medical services. Some plans may also provide coverage for specialty care services, such as physical therapy, occupational therapy, or chiropractic care. Refer to your health insurance policy to see what is covered.

Premiums for Commercial Health Insurance

Like coverage benefits, premiums for commercial health insurance vary depending on the specific health insurance plan. Some plans also require you to pay deductibles, copays, or coinsurance, in addition to premiums.

Commercial health insurance premiums depend on factors such as:

• The type of plan you choose (e.g., HMO, PPO, POS)
• The level of coverage you need
• Your location
• Your age
• Your health status
• Whether you smoke
• Number of people being covered

You must generally pay higher premiums for comprehensive coverage and lower out-of-pocket costs. You can lower your premiums by choosing a plan with a higher deductible or by participating in wellness programs offered by your insurance company.

Also, shop around and compare premiums from different insurance companies before choosing a plan to find one that meets your coverage needs and suits your budget.

Common Commercial Health Insurance Terms and Their Meanings

Here are some common terms you may come across when shopping for commercial health insurance and their meanings:

• Deductible: How much you must pay for covered medical expenses before your insurance begins to pay.
• Copay: A fixed amount you pay for a specific medical service, such as a doctor’s visit or prescription medication.
• Coinsurance: A percentage of the cost of a medical service you are responsible for paying after you have met your deductible.
• Out-of-pocket maximum: The maximum amount of money you will be required to pay out-of-pocket for covered medical expenses in a given year. After you reach this maximum, your insurance will pay 100% of the cost of covered services.
• In-network provider: A healthcare provider who has agreed to accept the payment rates and terms set by your insurance company.
• Out-of-network provider: A healthcare provider with no contract with your insurance company may charge higher rates for their services.
• Formulary: A list of prescription drugs covered by your insurance plan.
• Pre-existing condition: A medical condition you had before you enrolled in a health insurance plan. Some insurance plans may exclude coverage for the treatment of pre-existing conditions or charge higher premiums for people with pre-existing conditions.
• Premium: The amount of money you pay to your insurance company regularly (usually monthly) in exchange for coverage under your health insurance plan.

Conclusion

Commercial health insurance helps cover all or some of your medical care costs. It can be taken by individuals or organizations for employees.

The beneficiaries or company pay premiums for coverage. Payable premiums and coverage vary from plan to plan. You may also be required to pay deductibles, copays, and co-insurance for some health plans.