Understanding Commercial Health Insurance

What Is Commercial Health Insurance?

Private companies or nongovernmental organizations issue commercial health insurance. Government-sponsored health insurance policies generally are reserved for specific groups, such as senior citizens, people with low incomes, disabled people, current military members and their families, veterans, and members of federally recognized Native-American tribes. Examples of government-sponsored insurance include the Indian Health Service (IHS), Medicare, Medicaid, the State Children’s Health Insurance Program (SCHIP), TRICARE, and the Veterans Health Administration program. These government programs, funded primarily through taxes, are designed to provide medical coverage without returning a profit.

In contrast, most commercial insurance providers are for-profit companies, although some operate as nonprofit organizations. Policyholders’ monthly premiums fund commercial policies. Their premiums and coverage amounts are designed to create a profit for the insurance company. If your healthcare policy is not part of one of the aforementioned government programs, it is a commercial health insurance policy. Employer-provided group health insurance policies are commercial, as are individual policies people can buy if they do not receive employer or government insurance benefits.

In addition to federal regulations, each state has its own regulations governing insurance company requirements. This means that commercial health insurance providers vary by state. Some providers only work in certain states, and the policies offered by national companies tend to vary by state to conform to each state’s requirements.

How Does Commercial Health Insurance Work?

When you purchase a commercial health insurance policy, you choose a plan which covers the services you need and has a monthly premium you can afford. When choosing a plan, consider the deductible. This is the amount you must pay in that calendar year before the insurance will pay its portion. A lower deductible is typically offset by higher monthly premiums, and vice versa. Look on your insurance card or contact your insurance provider to learn the total amount of your annual deductible.

The exact services and amounts covered by commercial health insurance vary depending on your policy, but in general, they pay for a significant portion of the covered person’s medical expenses. Elective procedures which are not deemed medically necessary usually are not covered. Qualifying expenses include routine medical care, doctor visits, hospital stays, emergency services, mental and behavioral health, substance abuse treatment, and preventive services.

Preventive services are are performed regularly to prevent or detect potential health issues early, so they can be avoided or treated before they become more serious. Commercial health insurance plans cover many preventive services at no cost to the patient. These services may include routine immunizations, screenings, annual well woman exams, mammograms, and counseling.

When you visit a doctor, the office checks your insurance to learn which services are covered and what to charge you. The doctor’s office then submits a claim for the services rendered to the insurance company, which reimburses them for the covered portion. If a balance remains after the insurance company has paid its portion, you will be billed for it. The insurance will cover a larger portion of the cost if you visit a doctor who is within your insurance provider’s network. See the section below for more information about provider networks.

Types of Commercial Health Insurance

There are many different types of commercial health insurance. It is important to understand which options are available, how they work, and the differences between each kind. It also is possible to combine certain types. For instance, flexible spending accounts and health savings accounts are meant to complement other plans, covering expenses the primary policy does not. Here are some of the most common types of commercial health insurance.

  • Health Maintenance Organization: HMOs require you to choose a primary care physician (PCP) in their network. You must see this PCP for any health issue apart from emergencies. The PCP can refer you to a specialist in the HMO’s network if they cannot fully treat the issue. The exception is obstetricians/gynecologists, with whom patients can make an appointment directly. HMOs often have the lowest premiums and out-of-pocket costs, but they offer fewer choices. If you want to see a doctor outside the network, it will not be covered. The amount you pay for a monthly premium, deductible, and co-pay depends on your plan.
  • Preferred Provider Organization: PPOs also have a network of physicians, but offer policyholders more freedom and flexibility. If you see an in-network doctor, your co-pay is lower and a larger portion of the services are covered. You still have some coverage if you see an out-of-network doctor, but a smaller portion of the cost is covered and you pay more out of pocket. If you want to see a specialist, you do not need a referral from your PCP. As with HMOs, PPOs charge monthly premiums, deductibles, and co-pays. The amounts vary depending on your policy.
  • Exclusive Provider Organizations: An EPO requires you to see in-network doctors, but you are not required to see a PCP for a referral before seeing a specialist. You do not receive any out-of-network coverage, so your choices are limited to in-network providers. EPO plans are less expensive than most HMO or PPO plans. They may be best suited to young, healthy individuals who do not expect to need much medical care in the coming year. You pay monthly premiums, deductibles, and co-pays.
  • Point-of-Service Plan: A POS combines elements of HMO and PPO plans. Under a POS plan, you have a PCP who provides most services and can refer you to an in-network specialist if necessary. Many of the PCP’s services may not be subject to a deductible. Like a PPO, you have the option of seeing an out-of-network doctor. You will receive some coverage, but your out-of-pocket costs will be greater. You will be charged monthly premiums, an annual deductible, and co-pays.
  • Flexible Spending Account: Employers who offer health insurance may also add a flexible spending account as an optional supplement to the health benefits package. You elect an amount to be taken from your salary during the year, tax-free, in equal increments from each paycheck. You can use this money to pay for any eligible out-of-pocket medical and dental expenses you incur during the year, including deductibles, co-pays, over-the-counter medications, eyeglasses and other medical devices, and various health-related supplies.
  • High-Deductible Health Plan: HDHPs charge a higher deductible than most other health plans. The threshold is defined as an annual deductible of at least $1,350 for an individual or $2,700 for a family. The monthly premiums usually are lower than a standard HMO or PPO plan. HDHPs often are paired with a health savings account to make the deductible more affordable. This option is most appropriate for healthy individuals who do not anticipate needing much healthcare and can afford to pay the large sum if a medical emergency arises.
  • Health Savings Account: If you choose a HDHP, a health savings account is a helpful complement to it. The account allows you to put aside money to cover your deductible, co-pays, and other eligible health care-related expenses. As with a flexible spending account, you do not pay taxes on the funds you put in this account. Many health insurance providers that offer HDHPs also offer health savings accounts, but you can also open this type of account at most banks.
  • Private Fee-For-Service: A PFFS is a type of Medicare Advantage (also known as Medicare Part C) plan that is administered by a private company. You can choose a PFFS only if you are enrolled in Medicare, which is available to people age 65 or older. A PFFS lets you go to in-network doctors, and doesn’t require referrals to see a specialist. However, doctors can choose which services will be covered on a case-by-case basis. You can see an out-of-network doctor who accepts the plan’s terms, but your out-of-pocket costs will be higher. You pay monthly Medicare premiums and any co-pays.

What Is Commercial Prescription Drug Insurance?

Commercial prescription drug insurance covers a portion of the cost of medications prescribed by a doctor and filled by a pharmacy. Most commercial health insurance plans include commercial prescription drug insurance as a policy segment. However, some plans which exclusively cover prescriptions may be purchased separately if you do not already have prescription coverage. They are offered most often by larger commercial health insurance providers.

As with health plans, the policyholder pays a monthly premium for their commercial prescription drug insurance. Most plans also have an annual deductible, and a co-pay is charged based on the type of drug prescribed. In most cases, different drug tiers have different co-pay rates. Insurance providers prefer generic drugs, which cost the least if they are available. Name-brand drugs typically cost more, especially if a generic version is available. Specialty drugs require special handling and have their own co-pay.