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How does Private Health Insurance Work?

Edward Neeman | Published: June 14, 2018

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The majority of US residents have private health insurance. While public health care consists of Medicare and Medicaid, individuals obtain private health insurance directly from the insurance company, through an employer group plan or through an organization, such as a school. Before you obtain private health insurance quotes learn these health insurance basics so you understand what you'll get for your money.

Private Health Insurance Costs

Americans pay an average monthly premium of about $321 each month for an individual health insurance plan and about $833 a month for a family plan. However, that doesn't tell the full story because health insurance premiums vary depending on many factors which include:

  • The type of health coverage you are looking for.
  • Whether or not you want a high or low deductible.
  • How many people will be insured under the policy.
  • If you are purchasing as part of a group health plan, individual, or family.
  • Which part of the country you live in. Prices can vary depending on your zip code.
  • Some private health insurance plans may also take into consideration your current health and medical history.

Terms To Know

Understanding how private health insurance works is just a matter of becoming familiar with the terminology agents and carriers use. Here are some of the terms you need to know to become a health insurance pro:

Copay

The co-pay is a fee paid by the policyholder at the time of a medical visit.

Coverage

The term coverage refers to the medical care visits and items the policy pays for and its network of providers.

Deductible

A deductible is a cost of medical costs that policyholder must pay out-of-pocket before insurance pays for its portion. Some countries refer to it as excess.

Premium

A premium is the monthly, quarterly, or semi-annual amount the policyholder pays to the insurance company for the privilege of the insurance policy.

Provider network

The term provider network refers to doctors and medical treatment facilities that partner with (accept the insurance of) the insurer. The insurance company has approved these providers and the providers have agreed to accept the insurance company's plans. This is a feature of managed care plans.

Out-of-network provider 

The term out-of-network provider refers to a medical care provider or facility that does not have an established agreement with an insurance company to accept its plans. This is a feature of managed care plans.

Group Health Insurance

Group plans offer lower premiums since the promise of many individuals in the group purchasing a policy encourages the insurance company to offer lower premiums. If an employer offers a group plan, the employer may cover part of the plan cost which further lowers individual expense. Like corporate stores buying in bulk to offer lower resale prices, purchasing group private health insurance can lower your premium costs.

Individual Health Insurance

If your employer doesn't offer a group plan and no organization you belong to does, you'll need to purchase private health insurance directly from an insurance company. Other organizations that may offer plans include your school or university, a fraternal organization or a business association. If these avenues don't pan out, you'll have to pay for your insurance plan yourself. The premiums will probably cost more.

Health maintenance organizations

Some private health insurance plans only pay for medical care within a specific provider network. These health maintenance organizations (HMOs) cost less than those with large provider networks or those who pay for out of network visits. An HMO is a type of managed care plan.

Preferred provider organizations

Other private health insurance plans cover your in-network costs but also cover a portion of outside network costs. These preferred provider organizations (PPO) cost a little more, but offer greater treatment flexibility. A PPO is a type of managed care plan.

Point of service

A third individual health insurance option lets the individual choose between a PPO or an HMO at each medical care visit. Although the cost is slightly greater, Point of Service (POS) plans offer in- and out- of network flexibility, and a wider choice of doctors and hospitals. A POS is a type of managed care plan.

Indemnity Plans

In an indemnity or fee-for-service plan, the insurer places no restrictions on your choice of hospitals or doctors. You pay a fee for each medical care visit. Your out-of-pocket costs are usually higher than with managed care, but the plan offers the greatest flexibility. This type of private insurance plan is not a managed care plan.

Choosing the right plan for you may seem complicated but free price and plan comparison tools like First Quote Health simplify the process for you. You'll be able to compare all plan aspects, including policy type, premium costs, and coverages. First Quote Health makes obtaining private health insurance quotes and choosing your private insurance plan simple.