What Are Commercial Insurance Plans?

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When it comes to protecting your family, nothing is more important than health insurance. Without insurance, it would be hard for most people to afford their medical care costs if they became severely ill. There are two types of health insurance: taxpayer-funded and private-funded. Commercial insurance plans are provided by non-governmental entities. They cover medical expenses and are chiefly funded through benefits plans provided by employers.

Tip

Many patients are commercially insured, meaning their health insurance policy is not administered by the government.

Commercial Vs. Noncommercial Health Insurance

Commercial health insurance is any type of healthcare policy that is not administered through a government program. Also known as private-funded insurance, these plans primarily are provided through benefits plans provided by employers. Most operate for profit, although some commercial health insurers are non-profit organizations. Examples include Blue Cross and Blue Shield.

By contrast, non-commercial health insurance is funded by federal and state taxes. Examples include Medicare, Medicaid, the Children's Health Insurance Program and the Veterans Health Administration. These plans provide basic medical coverage for certain disadvantaged groups such as disabled people, people with low incomes, veterans and senior citizens.

How Does Commercial Insurance Work?

Each state has its own rules regarding commercial health plans. State legislation mandates what the plans are required to offer and how they reimburse medical providers and patients, among other things. As long as they operate within these guidelines, commercial insurers are allowed to design whatever plans they think fit.

For commercially insured patients, this means that policies will vary widely in the types and amount of healthcare coverage they provide. Some commercial health insurers work only in certain states. National companies work everywhere, but will switch up their terms and coverage to comply with each state's legal requirements.

Beyond that, commercial insurance works exactly as you expect. When you visit a doctor, the office will check with your insurance to see if the service is covered and what to charge you. The doctor will then submit a claim to the insurance company. If the service is not covered or is only partially covered, you will be billed for the remainder.

Individual Versus Group Coverage

Commercial insurance comes in two varieties: individual or group. If you buy insurance on your own, it's an individual plan. What your employer offers is considered group coverage. Some employers contract with several commercial insurers to provide healthcare benefits to their employees, so employees get to choose the plan that's right for them.

Employers who offer healthcare benefits tend to be more attractive to job applicants, and that's because group plans tend to charge a lower rate than a person could negotiate on his own. Employers often cover a portion of the cost as an employment benefit, further reducing the cost of coverage.

Types of Commercial Health Insurance

Most commercial plans are structured either a Health Maintenance Organization or a Preferred Provider Organization but, in fact, there are many types of commercial health insurance. Here's a breakdown of the most popular options on the market.

  • Health Maintenance Organization. HMOs require the policyholder to choose a primary care physician (PCP) in the plan's network. The PCP then acts as a gatekeeper – organizing tests, determining an appropriate plan of care for the patient and coordinating with specialty care providers if the PCP cannot provide the treatment on his own. HMOs are cost-effective plans, but your choices are limited as you won't be able to see a doctor outside your network.
  • Preferred Provider Organization: With a PPO, you can see any healthcare provider (including specialty providers) within the plan's network, and you may not need a referral from a PCP. Some plans let you see out-of-network doctors although you may pay more out of pocket. Overall, the patient has much more autonomy over how her treatment is delivered. Premiums tend to be higher than with an HMO plan.
  • Point-of-Service Plan: A POS is a hybrid HMO/ PPO where your PCP delivers most of your healthcare and refers you to a specialist as necessary. Like a PPO, you can see an out-of-network doctor although your out-of-pocket expenses will be higher.
  • Exclusive Provider Organization: With an EPO, you can only see healthcare providers in the plan's network, but you don't have to get a referral from a PCP. These plans are geared towards young and healthy individuals who are unlikely to need a lot of medical treatment in the coming year, and are less expensive than most HMOs or PPO.
  • Flexible Spending Account: An FSA is an employer-sponsored benefit that allows your employer to take a predetermined amount from your salary each month, tax-free. The money is set aside to pay for any out-of-pocket medical expenses that arise during the year including co-pays, deductibles, eyeglasses and non-prescription medications.
  • High-Deductible Health Plan and Health Savings Account: As the name implies, an HDHP charges a higher deductible than other plans, although this is offset by lower monthly premiums. They are often matched with a tax-advantaged health savings account that allows you to put tax-free money aside to cover the expenses that your HDHP will not cover.
  • Private Fee-For-Service: Anyone enrolled in Medicare has the option of taking out a PFFS, which essentially is a Medicare Part C plan administered by a private insurance company. Medicare is available to people aged 65 and older. The plan lets you visit in-network doctors and determines how much you must pay when you get care.

What Plan Should You Choose?

When you purchase a commercial health insurance policy, look for a plan that covers the health services you need and has a monthly premium you can afford. The exact services covered by the plan vary greatly from policy to policy, so make sure that all your routine medical care, PCP visits, emergency services, hospital stays and preventative services (routine immunizations, mammograms, well-woman/well-man checks and so on) are covered. If you need them, choose policies that cover specialty services like substance abuse treatment.

Take a close look at the deductible, which is the amount you must pay out-of-pocket each year before the insurance kicks in. You may opt for a plan with a low deductible which typically requires higher monthly premiums, or vice versa. The decision may depend on your current health status – whether you think you will need medical treatment in the coming year – and whether you can afford to pay a large deductible.

Depending on the type of plan, you may also have a list of in-network doctors or hospitals you can visit to review. Having a smaller pool of healthcare providers to choose from can reduce your premiums, but you may end up making a three-hour round trip to see a specialist who isn't close by.

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