The Complete Guide to Commercial Health Insurance Plans
Many Americans use commercial health insurance plans to pay for their annual examinations and other necessary medical expenses. These private health plans cover any bills they may incur at doctor's offices, hospitals, and other healthcare facilities.
But what is commercial health coverage, and how can it protect you and your family? Today, you'll learn how this essential insurance can be beneficial for you.
What Is Commercial Health Insurance?
Commercial health insurance packages are plans sold by companies or organizations through licensed agents and brokers. This coverage differs from publicly-funded government options like Medicare, Medicaid and the Children’s Health Insurance Program (CHIP).
Insurers sell commercial health insurance policies to make a profit. Commercial insurers rely on contracted providers and cost-sharing strategies (such as premiums, co-payments, and deductibles) to lower patients’ medical costs to boost their revenues.
Most people enroll in commercial health plans through an employer’s group insurance coverage. Companies usually require their employees to work a certain number of hours before they receive these insurance benefits. The employer covers a portion of the employee’s insurance premiums and fees, and the rest is deducted from your paycheck.
Self-employed people can also buy commercial health insurance coverage, but it may be more cost-effective for them to buy it through group plans offered by a professional organization. Individuals can also buy these policies directly from an insurance carrier.
Commercial Health Coverage in the Marketplace
According to a 2018 Kaiser Family Foundation study, 55 percent of Americans had some form of commercial health coverage. Typically, commercial health coverage falls under two categories in the United States: individual and group plans.
Group plans: Forty-nine percent of U.S. employees are on a group plan provided by their employers. Some non-profit organizations and professional associations also offer their members this coverage. Under these plans, businesses offer different options that meet the needs of their employees. Some corporations will even offer a variety of two or more insurance providers.
Individual coverage: Six percent of Americans have a non-group plan or individual coverage. Self-employed workers may purchase these policies for themselves or a family member. When someone buys health insurance, he or she can only select options from local insurers within their state.
Commercial Health Insurance Models
Most commercial health plans follow eight standard models in the insurance industry. The most common structures available on the market are Health Maintenance Organizations (HMOs), Preferred Provider Organizations (PPOs) and exclusive provider organizations (EPOs).
The least common ones are Point of Service plans (POS) and Indemnity Plans. Other options include Private Fee for Service Plans, Flexible Spending Accounts, and High Deductible Health Insurance Plans with Health Savings Accounts.
Sometimes, an insurer will work with a company to build a custom commercial insurance health plan for businesses; however, these are not as common as HMOs, PPOs, and EPOs. An insurer may develop and offer other types of insurance plans for businesses, but they are rare. They are usually a combination of the five models already developed for the market.
1. Health Maintenance Organization
One of the most common health insurance coverage in the United States are Health Maintenance Organizations (HMOs). These managed care plans cover medical services from a limited network of providers. These commercial insurance policies provide health insurance coverage to policyholders for a monthly or annual fee.
They assign medical services to in-network hospitals, physicians, and providers who are under contract with the HMOs. These agreements help the insurer keep premiums lower than traditional health insurance. Healthcare providers also have the advantage of having patients referred to them. In addition to cheaper premiums, there are lower deductibles within an HMO. Instead, these organizations require their subscribers to pay a low co-pay, usually $5 - $20 per visit, to minimize out-of-pocket expenses. Although HMOs have some cost advantages over others, these commercial plans have several restrictions. These plans require subscribers to choose a primary care provider who manages the majority of decisions about their healthcare. Most HMO participants will need to obtain a referral from a primary care doctor before you can see a specialist.
If you don’t get a referral from a primary care physician before seeing a specialist, you may be responsible for the costs of your appointment or healthcare procedure. All doctors will need to be selected from your HMO’s network. You can see an out-of-network provider if you have an emergency and there are no other options.
Most HMOs require policyholders to pay for a portion of their services, such as a co-payment when seeing their primary care physician or specialist for an appointment.
2. Preferred Provider Organization
If you’re searching for a plan that offers more flexibility than an HMO, you should look at a preferred provider organization (PPO) option.
A preferred provider organization (PPO) is a healthcare arrangement where doctors and medical facilities provide services to their policyholders at a reduced cost.
This managed care organization has medical professionals, hospitals, and healthcare professionals who are under contract with the PPO. Physicians and medical facilities that belong to the system are called preferred providers. They agree to provide services to their subscribers at an agreed-upon reduced rate. In exchange, the PPO allows the medical providers to have access to their large network of subscribers. PPO participants can use any of the services offered within their network, but out-of-network care costs more. Subscribers are charged a reasonable and customary fee schedule for out-of-network claims. If they exceed these costs, then the patient will be responsible for the excess charge. PPO subscribers usually pay a co-payment every appointment, or they need to meet a deductible before coverage starts. PPOs have a disadvantage when compared to HMO plans. They charge higher premiums to their subscribers because they’re more expensive to manage.
3. Exclusive Provider Organization
An exclusive provider organization is a blend of an HMO and PPO plan that offers customers a network of doctors and hospitals they can use. This coverage requires policyholders to see in-network doctors for medical care. Individuals don’t have to select a primary care provider with an EPO as they do with an HMO; however, this insurance does not cover services provided by out-of-network health care providers. Some insurers recommend their policyholders choose a primary care provider to oversee their healthcare, although it’s not a requirement. Most procedures and non-emergency hospital stays (like maternity) must be approved by the insurance company in advance. These policies usually cover emergency medical treatment.
Many insurers market EPOs to younger and healthier people who won’t need a lot of medical care within a year. They are also less expensive than HMOs and PPOs.
4. A Point of Service Plan
A point of service plan (POS) is a managed-care health insurance plan. This hybrid has the features of both health maintenance organizations (HMO) and preferred provider organizations (PPO). Most people with a POS plan have expanded options compared to those with an HMO plan. Like HMOs, members must select a primary care physician and ask for a referral to see a specialist.
Unlike HMOs, members have the choice to go to doctors, hospitals, and medical providers that aren’t listed in your plan’s network like a PPO plan, but you may have to pay more. Most plan holders will pay less if they see an in-network physician. POS plans require policyholders to pay co-payments to in-network providers that cost $10 to $25 per appointment on average. These plans usually don’t have deductibles for in-network providers.
You'll be responsible for any bills, up to a specific amount, if you see an out-of-network provider. Subscribers must pay their deductible for out-of-network services before the insurance company reimburses any expenses.
POS plans hold a smaller percentage of the market share. They are 50 percent less than PPO plans but cost 50 percent more than HMO ones. Patients who don’t use out-of-network services may be better off using an HMO because of its lower premiums.
5. An Indemnity Plan
An indemnity plan offers the most freedom and flexibility of all the other insurance plans. They differ from HMOs and PPOs because these plans allow subscribers to choose their doctor, healthcare professional, hospital, or service provider. These plans are also called traditional indemnity plans or fee-for-service plans.
Under an indemnity plan, people can direct their healthcare. They don’t have to select a primary care provider for your care. This coverage also allows you to choose your own specialist. Subscribers don’t have to get a referral from a primary care provider to get covered for care.
Indemnity plans are great for people who don’t want a primary care physician managing most of the decisions about their care.
Are you searching for a great commercial health insurance plan that will protect you and your family? You can use SmartFinancial’s app to compare indemnity plans and find coverage that best suits your needs.
6. Flexible Spending Account
These are employer-sponsored benefits that companies set up for their employees. Flexible Spending Accounts (FSA) allow employers to set aside a predetermined, tax-free amount out of a worker’s salary. This money pays for out-of-pocket medical costs that arise during the year, including co-pays, deductibles, vision care, dental care, and non-prescription medications.
Workers can also establish a dependent-care flexible spending account. They can use these payment arrangements to care for qualifying adults and spouses who can’t care for themselves and meet guidelines established by the Internal Revenue Service.
7. High-Deductible Health Plan and Health Savings Account
Another commercial health insurance package that can help you manage your medical expenses is a High Deductible Health Plan (HDHP). These plans charge a lower monthly premium to its customers, but it has a higher deductible. It means that you’ll pay for more of your health care before your insurance kicks in. Companies match these plans with a tax-advantaged health savings account that allows workers to save tax-free money to cover the expenses that an HDHP will not cover.
HDHP must set a minimum deductible and a limit, or maximum, on out-of-pocket costs. For 2020, individuals have a minimum deductible of $1,400 (before your plan starts to pay) and a maximum of $6,900 out-of-pocket expenses. For family HDHP, there is a minimum deductible of $2,800 (before insurers pay) and a maximum of $13,800.
These plans are perfect for people who don’t have many health care expenses and may benefit from lower monthly premiums. When you need more healthcare, you can rely on your HSA to pay for these expenses. You can rollover your HSA from year to year, so you can build up savings to pay for any health care services you’ll need later on.
8. Private Fee For-Service
Medicare is a federal insurance plan available for people age 65 years or older, and younger people with certain disabilities. Members have the option of using a commercial Private Fee-for-Service Plan (PFFS).
It is a type of Medicare Advantage Plan (Part C) program offered by a private insurance company. These plans determine how much they'll reimburse for medical services. They’ll also tell you how much you’ll need to cover your healthcare expenses.
Some PFFS plans have contractual agreements with a network of providers. They agree to treat you, even if you haven’t seen them before. Out-of-network doctors and other providers may not see you, even if you’ve worked with them before. Make sure doctors and hospitals will agree to treat you under the plan and accept its payment terms.
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