What Is Private Health Insurance? (2024)

Private health insurance is healthcare coverage provided by a private company—not the government.

You can get health insurance in many ways, but health insurance plans typically fall into two large categories: private and public. Private health insurance is the most common way Americans get coverage. The U.S. Census Bureau estimates that 66% of Americans have a private health plan compared to nearly 36% of those with public plans.

What Is Private Health Insurance?

Private health insurance is a contract between you and a private health insurance company that mandates the insurer pay some or all of your medical expenses as long as you pay your premium. Insurance provided by a state government or the federal government is considered public health insurance.

You can get private health insurance through an employer, the Affordable Care Act (ACA) marketplace or directly from a health insurance company.

Public health insurance includes programs such as Medicare, Medicaid and the Children’s Health Insurance Program (CHIP). Private health insurance companies may also offer private plans in collaboration with Medicare and Medicaid. These types of plans are called Medicare Advantage and Medicaid managed care plans.

What Does Private Health Insurance Cover?

Private health insurance plans typically cover medical, hospital and preventive care. They can vary significantly in terms of coverage, but can help pay for a range of medical services, such as:

• Hospital services. Costs related to hospital stays, surgeries and treatment received in a hospital.
• Medical services. Consultations, doctor visits, outpatient treatment and preventive care expenses.
• Mental health services. Bills for mental health treatment, including therapy and counseling.
• Prescription drugs. Partial or full payment for prescription medication.
• Rehabilitation and physical therapy. Costs for occupational and physical therapy.
• Specialist care. Visits to specialists, such as cardiologists or dermatologists.

Whether a private health plan covers care outside of your provider network depends on the type of health insurance. Preferred provider organization (PPO) plans allow out-of-network care, but that care generally costs more than if you receive care inside of the network.

Health maintenance organization (HMO) and exclusive provider organization (EPO) plans, on the other hand, don’t generally pay for out-of-network care unless it’s an emergency.

ACA plans on the marketplace must cover 10 essential health benefits at a minimum, which employer-sponsored health plans also often cover. They include:

• Ambulatory care, also called outpatient care
• Emergency care
• Hospitalizations
• Lab services
• Mental health and substance use disorder services
• Pediatric services—ACA plans must cover oral and vision care for children
• Pregnancy, maternal and newborn care
• Preventive and wellness care, as well as chronic disease management
• Prescription drugs
• Rehab and habilitative services and devices

The federal government also requires that private ACA health insurance plans cover birth control services and breastfeeding coverage.

How To Find Cheap Private Health Insurance

Group health insurance plans offered through workplaces are often the most affordable private health insurance plans because employers subsidize costs.

If you do not qualify for an employer-sponsored plan, you can use the ACA marketplace to find the best affordable health insurance coverage for you and purchase a plan. These plans often cost more than employer plans, but you can save money if you qualify for premium tax credits and subsidies, which reduce the costs of ACA plans.

Another option for the cheapest private health insurance is to purchase short-term health insurance. But you shouldn’t view short-term health insurance as a long-term coverage solution. These plans offer limited coverage, high out-of-pocket costs and an expiration date.

Types of Private Health Insurance

There are several different types of private health insurance that you can buy.

Employer-Sponsored Health Insurance

Employers often offer group health insurance as part of their benefits package. This coverage may be available to you as an individual only, or coverage may be extended to your spouse and dependents at a higher price.

The ACA mandates that businesses with 50 full-time employees or more provide comprehensive health insurance that pays for at least 60% of health insurance costs. Businesses that don’t offer the minimum affordable health insurance coverage may be subject to a tax penalty.

Almost half of all Americans receive employer-sponsored health insurance, according to the Kaiser Family Foundation.

ACA Marketplace Plans

You can also purchase private health insurance from companies such as Kaiser Permanente, Blue Cross Blue Shield and UnitedHealthcare through the ACA marketplace at Healthcare.gov. The marketplace allows you to compare available health insurance plans and enroll via a variety of methods, including online, over the phone and in person.

The federal government offers its health insurance marketplace in most states, while other states have their own exchanges. When applying for ACA health insurance, you enter household and income information. Based on that information, the marketplace estimates the cost of health insurance once possible premium tax credits and subsidies are taken into account.

Individual Health Insurance Directly From an Insurance Company

You can also buy individual health insurance directly from a health insurance company.

These plans aren’t required to comply with ACA regulations, although many do. Other types of plans may not provide all of the essential health benefits found in ACA plans.

Because these plans aren’t required to meet ACA regulations, you may buy cheaper health insurance directly from an insurer that doesn’t have as much coverage as a plan found on the marketplace. Health insurance companies often also offer similar plans as those found on the marketplace.

One important difference between the marketplace and buying directly from an insurance company is that unlike plans purchased on the marketplace, plans purchased directly from a company don’t qualify for premium tax credits or subsidies. That may not impact you if your household income exceeds tax credit and subsidy limits, but if you qualify for those cost savings, it might pay off to stick with a marketplace plan.

Short-Term Health Insurance

Many states allow low-cost, short-term health insurance, which offers limited coverage for a limited time. These health plans provide cheap coverage, but they don’t offer the protections found in standard health insurance.

Short-term health plans are also allowed to refuse to cover people with pre-existing conditions. These plans have limits on prescription drug benefits, doctor visits and covered services. Short-term plans also don’t generally cover maternity care or mental health.

You might consider a short-term health plan if you lose your job-related coverage and don’t want to pay for COBRA health insurance until you get new employer-sponsored coverage again. Or you may just prefer the low costs of a short-term plan, knowing that those plans don’t offer the coverage found in a standard health plan and you will pay much more for care when you need it.

Short-term health insurance typically lasts for an initial 364 days, with the option for renewal for up to 36 months in most states. But some states have additional stipulations. Some states, including California, don’t allow short-term health insurance plans.

Catastrophic Health Insurance

Catastrophic health insurance is a type of coverage found on the ACA marketplace that provides the same level of coverage found in an ACA plan but with an exorbitant deductible.

A catastrophic health insurance plan deductible in 2023 is $9,100. Family coverage has a deductible of $18,200. Once you reach the deductible, a catastrophic plan picks up the rest of your health care costs for the year.

These policies aren’t for everyone. You must be under age 30 or qualify for a hardship exemption. For instance, you may qualify for a hardship exemption if you’re homeless.

A catastrophic plan could be a choice for a young person who only wants a safety-net plan, but this low-cost option comes with hefty out-of-pocket costs when you need care.

What Is Not Considered Private Health Insurance?

Medicare, Medicaid and CHIP plans are not private health insurance.

Medicare

Medicare is the health insurance program for qualified Americans that’s run by the federal government. Just over 18% of Americans have Medicare, according to the most recent data from the U.S. Census Bureau.

You must meet one of three qualifications to qualify for Medicare coverage:

• You must be 65
• Have a qualified disability
• Have end-stage renal disease requiring dialysis or a transplant

Medicare is divided into Original Medicare and Medicare Advantage.

There are two parts of so-called Original Medicare coverage:

• Medicare Part A: This covers hospitalizations, nursing facilities, hospice and at-home care.
• Medicare Part B: This is medical insurance that covers your doctors appointments, outpatient care, medical supplies and preventive services.

People with Original Medicare can also get:

• Medicare Part D: Prescription drugs, including some shots and vaccines, are covered by this part of Medicare.

An alternative to Original Medicare is Medicare Advantage, also called Part C. Private health insurance companies work with the federal government to offer Medicare Advantage plans that often include supplemental benefits not found in Original Medicare.

Medicaid

Medicaid is a government-funded health insurance plan that is designed for low-income households. Women who are pregnant and those with disabilities may also qualify. Almost 19% of Americans have a Medicaid plan, according to the most recent data from the U.S. Census Bureau.

Medicaid is available in all states, but eligibility rules vary by state. Coverage begins immediately for qualified applicants. You can also visit the health insurance marketplace to complete an application and see which options are available to you.

Children’s Health Insurance Program (CHIP)

CHIP provides low-cost health insurance for children in families who can’t afford private health insurance and whose income disqualifies them for Medicaid. The program is state-run and funded jointly by states and the federal government.

Some states roll CHIP into the state’s Medicaid program, while others have separate Medicaid and CHIP programs.

CHIP includes several types of coverage, such as well-baby and well-child visits, dental insurance, behavioral treatment and vaccines.

Private Health Insurance FAQ