Private Insurance: A Popular Choice Or Necessary Evil?

Private health insurance is a contract between an individual and a private health insurance company, which mandates the insurer to pay some or all of the individual's medical expenses as long as they pay their premium. The cost of private insurance varies by plan type and coverage level, and some employers provide private insurance as an employee benefit. In the US, private health insurance is the most common way Americans get coverage, with 66% of Americans having a private health plan compared to 36% with public plans. However, public figures such as Bernie Sanders have criticised private insurance companies, and a survey found that 55% of voters back a Medicare for All system that would eliminate private insurers.

Medicare vs. private insurance: comparing the costs and benefits

Overview

People looking for health insurance can choose between Medicare and private companies. The best option for an individual will depend on their healthcare needs and financial situation.

Medicare

The federal government provides Original Medicare, which is broken down into four parts:

• Part A: Hospital insurance that covers inpatient hospital care, skilled nursing facilities, hospice care, and some home healthcare.
• Part B: Medical insurance that covers doctor visits, outpatient care, some home healthcare, durable medical equipment, and preventive services.
• Part C: Also called Medicare Advantage, this combines the coverage of Parts A and B into a single plan, often including prescription drug coverage.
• Part D: Prescription drug coverage that can be purchased as a stand-alone policy or as part of a Medicare Advantage plan.

Private Insurance

Private health insurance is offered by private companies and tends to be more costly each month. It includes coverage obtained through an employer or purchased directly from an insurance company or marketplace website. Private insurance is available to anyone, regardless of age, and often allows people to extend health coverage to dependents.

Costs

Medicare costs less than private insurance, with most people qualifying for a $0 premium on Medicare Part A. Private insurance premiums vary depending on location, age, and chosen type of coverage. For example, high-deductible plans often cost less per month than low-deductible plans.

Benefits

Medicare Advantage plans often offer vision and dental coverage, which is not included in Original Medicare. Private insurance generally covers at least preventive healthcare visits, with individuals able to choose all-in-one plans or add additional services to their plan.

Coverage

Medicare plans generally cover inpatient and outpatient care, durable medical equipment, and preventive services. Private insurance plans are responsible for covering at least preventive healthcare visits, with the option to add on additional insurance plans for more comprehensive coverage.

Medicare and private insurance offer distinct advantages in terms of costs and benefits. Medicare is typically more affordable, while private insurance provides more flexibility, especially for those with dependents. Individuals should carefully consider their healthcare needs, financial situation, and desired coverage when choosing between the two options.

Private insurance is more expensive than government-backed insurance

The cost of private insurance varies depending on factors such as age, location, and chosen type of coverage. For example, a Silver health plan for a 40-year-old costs $584 per month on average, while the same plan in Alaska averages $948 per month. The cost of private insurance is also influenced by federal subsidies and regulations, with premiums being high and rising. In contrast, Medicare costs less than private insurance, with most people qualifying for a $0 premium on Medicare Part A.

Private insurance premiums are affected by various factors, including federal subsidies and regulations. The federal government subsidizes most premiums, either directly or indirectly, which can help offset the cost for some individuals. However, premiums for private insurance have grown faster than the economy and average income, resulting in higher costs for enrollees.

The high cost of private insurance is a concern for those who rely on it, as it can place a significant financial burden on individuals and families. The cost of private insurance is also influenced by the rising cost of healthcare, as insurance companies have to pay more when individuals seek medical care. This results in insurance companies charging higher rates to ensure they can cover the costs of an individual's care.

While private insurance can be more expensive than government-backed insurance, it is important to note that private insurance may be the only option for some individuals, especially those who are not yet 65 years old, which is the eligibility age for Medicare. Additionally, private insurance may offer more comprehensive coverage and allow individuals to extend health coverage to dependents, which can be a deciding factor for those with families.

Medicare Advantage plans: what are they?

Medicare Advantage plans, also known as Part C, are an alternative to Original Medicare (Parts A and B). They are offered by private companies that contract with Medicare and must follow rules set by Medicare. These plans combine the coverage of Part A (Hospital Insurance) and Part B (Medical Insurance) into a single plan.

Most Medicare Advantage Plans include drug coverage (Part D) and may also offer coverage for services that Original Medicare does not, such as dental, vision, and hearing care. People with Medicare Advantage typically need to visit in-network doctors.

Insurance companies offering Medicare Advantage plans can decide whether to make a plan available to everyone with Medicare in a state or only in certain counties. They may also offer multiple plans in an area with different benefits and costs. Each year, insurance companies can decide to join or leave Medicare, and if a plan decides to stop participating, enrollees will need to join another Medicare health plan or return to Original Medicare.

Medicare Advantage plans include various types, such as Health Maintenance Organizations (HMOs), Preferred Provider Organizations (PPOs), and Special Needs Plans (SNPs).

Private insurance: how to apply and get financial help

How to Apply for Private Insurance

If you're looking to apply for private insurance, you can do so through the federal Health Insurance Marketplace or state exchanges. You can also buy your individual or family policy from a public or private exchange. Private insurance exchanges are online resources set up by a health insurance company, a licensed broker, or an insurance agent.

The application process typically involves creating an account and filling out an online form with your personal and financial information. This includes your Social Security number, contact information, number of dependents, current job and income details, and current insurance information.

How to Get Financial Help for Private Insurance

There are various financial assistance programs available to help with the costs of private insurance. Here are some options to consider:

• Medicaid and the Children's Health Insurance Program (CHIP): These programs reduce healthcare costs for low-income Americans. CHIP provides health coverage for children in families who earn too much to qualify for Medicaid. You can check your eligibility and find local providers through InsureKidsNow.gov.
• Premium Tax Credits: This program helps cover health insurance premiums and is available for those who buy insurance through state or federal Health Insurance Marketplaces. You can claim the credit when filing taxes or have monthly payments sent directly to your insurer.
• Cost-Sharing Reductions: These apply to private health insurance purchased through the state or federal Marketplace and lower your deductibles, coinsurance, and copayments. They are automatically included in silver plans for eligible individuals.
• Medicare Assistance Programs: If you're enrolled in Medicare and need help with costs, you can look into Medicare Savings Programs, which help with Parts A and B premiums, deductibles, copayments, and coinsurance. You can apply through your state's medical assistance office.
• State-Funded Subsidies: Some states offer additional subsidies to reduce premiums and/or cost-sharing for eligible enrollees. You can access these by enrolling through the state's exchange and meeting the eligibility rules.

Private insurance: the different types

Private health insurance companies offer multiple types of benefit designs, which affect where you can get care, how much you’ll pay, and whether you need a referral to see a specialist. Here are the four most common types of health insurance plans:

Preferred Provider Organization (PPO)

Preferred Provider Organization (PPO) plans offer the most flexibility, but that typically comes with higher premiums than other plan types. A PPO allows you to get out-of-network care (but at a higher cost than in-network care). You also don’t need a primary care provider referral to see specialists.

Health Maintenance Organization (HMO)

Health Maintenance Organization (HMO) plans are generally cheaper than PPOs, but those lower premiums have more restrictions. You typically must name a primary care provider, who oversees your healthcare. Referrals are required to see specialists. An HMO only pays for in-network care.

Exclusive Provider Organization (EPO)

Exclusive Provider Organization (EPO) plans are similar to HMOs and generally cost about the same. They don’t reimburse for out-of-network care, so you should stay in your provider network. EPOs are different from an HMO in that you don’t need a referral to see a specialist.

Point of Service (POS)

Point of Service (POS) plans, which are the least common health plan type, combine elements of an HMO and a PPO. A POS may cover out-of-network care, just like a PPO, but you generally need to name a primary care provider and they must write a referral for you to see specialists, which is similar to an HMO.

Frequently asked questions