What Is Commercial Health Insurance?

Commercial Health Insurance Explained

Little girl at a doctor's office for a vaccine injection
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Definition

Commercial health insurance is a health insurance plan that’s managed and administered by a private company, not a state or the federal government.

Key Takeaways

  • Commercial health insurance is run by private companies instead of the government.
  • You can get group commercial health insurance plans through your employer, or you can purchase non-group coverage on your own.
  • Commercial health insurance is a broad term that includes several different types of insurance plans. These include HMOs, PPOs, POS, and Medicare Advantage plans.

How Commercial Health Insurance Works

Commercial health insurance is an insurance plan that’s not administered by a state or federal government. Instead, this type of insurance is managed by a private or public company. The majority of Americans use commercial health insurance, according to data from the U.S. Census Bureau.

Public health insurance, such as Medicare and Medicaid, isn’t considered commercial health insurance because it’s government-run. However, Medicare Advantage and Medigap plans count as commercial health insurance since private health insurance companies manage them.

Note

There are two main categories of commercial health care: group and non-group. Group health plans are typically offered by employees or employee organizations. Non-group health plans are purchased by individuals either in or out of their state’s Health Insurance Marketplace.

Medical care can be expensive. If you don’t have health insurance, you’d have to pay for all of your doctor visits, procedures, prescription drugs, and other medical expenses out of pocket, which can be cost-prohibitive. Many people aren’t in a financial position to be able to afford this, which is why most of us turn to health insurance to help reduce health care costs.

Commercial health insurance is an agreement between you and a health care company to share your medical costs. You pay a monthly premium to access the plan. The subsequent cost-sharing then occurs according to your plan details. Typically, you’ll pay for some of your medical costs through a deductible, copay, and coinsurance. The health insurer pays the rest.

Enrolling in Commercial Health Insurance 

Before you can start using your commercial health insurance benefits, you must purchase a plan from your employer or on your own. If you have multiple plans to choose from, take time to compare the differences so you can pick the one that’s best for your family. 

When comparing health insurance plans, pay attention to the following specifications: 

  • Type of plan (HMO, PPO, POS, etc.)
  • Amount of monthly premium
  • Amount of your deductible and any other out-of-pocket expenses (such as copays or coinsurance)
  • Covered services (for instance, does the coverage include dental or vision?)
  • Providers in the plan’s network
  • Limits for out-of-pocket expenses

After comparing the options, decide which plan has out-of-pocket expenses you can manage with a monthly premium that fits in your budget. Then you can fill out the required paperwork and sign up. 

Note

Depending on your income, you could qualify for a premium tax credit that can help reduce the costs of plans purchased through the Health Insurance Marketplace.

Using Commercial Health Insurance

Once you’ve enrolled in a commercial health insurance plan, expect to receive a membership package with your insurance card and additional plan details. The exact services covered by commercial health insurance plans vary greatly, so you’ll want to hang onto your paperwork to review it as needed. You can also contact your insurance company if you have other questions.

Once you have commercial health insurance, remember to take your card with you when you visit the doctor. When scheduling an appointment, verify that the doctor is covered by your plan. Some health insurance policies limit you to a specific network of providers, so you’ll want to make sure your doctor or health care practitioner accepts your specific insurance. 

After arriving at your appointment, your doctor’s office will check your insurance to verify coverage. When your appointment is over, your provider will file a claim with your insurer. Your insurance company will review the claim and send the covered amount of money to the provider. If there’s a balance, you will receive a bill.

Note

Some commercial health insurance plans may ask you to submit a claim yourself. If your insurance company requires you to file this way, follow their process carefully to help avoid claim denials. 

Types of Commercial Health Insurance

There are several kinds of commercial health insurance policies. Here are some common types: 

  • Health maintenance organization (HMO)
  • Preferred provider organizations (PPO) 
  • Point-of-Service (POS)
  • Medicare Advantage plans

Health Maintenance Organizations (HMO)

HMOs have a network of health care providers that have agreed to cap billing at a certain level. This arrangement helps to keep costs low. HMOs are typically less expensive than other types of insurance plans. However, you must get a referral from your primary care doctor before you can see any other medical practitioners. And, since there are a limited number of providers to work with, you may have less flexibility. 

Preferred Provider Organizations (PPO)

PPOs provide more flexibility compared to HMOs. However, they do tend to have higher out-of-pocket fees. With these plans, you don’t need to pick a primary care doctor. You can also see a doctor or specialist out of network if you want, though you may have to pay more if you do. 

Point-of-Service Plans (POS)

A POS plan combines some features from an HMO with other features from a PPO. With this type of insurance plan, you must get a referral from a primary care doctor before you can see a specialist. But you can go to doctors outside of your network if you choose. If you go out of the network, you’ll most likely have to pay a higher rate. 

Medicare Advantage Plans

Original Medicare is federally funded and isn’t considered commercial health insurance. However, during the open enrollment period you can switch from Original Medicare to Medicare Part C, which is also known as “Medicare Advantage.” Private companies administer these plans, which provide at least the same benefits as Original Medicare. They often provide additional coverage as well, such as prescription drug coverage. 

The Bottom Line

If you aren’t on a public health insurance plan such as Medicare or Medicaid, chances are good that you have commercial health insurance. There are many different types of plans out there, so make sure you choose the one that works for you.

Frequently Asked Questions (FAQs)

How do I know if I have commercial health insurance?

If your health insurer is anyone other than the government, then you have commercial health insurance. Any company that offers health insurance is a commercial health insurer. This includes government programs like Medigap plans that are managed by private health insurance companies.

What are the benefits of commercial health insurance?

Commercial health insurance can be more stable than health plans offered by the government. A pay raise at work could complicate your qualifications for government programs, and lawmakers have the power to change government programs as they see fit. In contrast, commercial health insurance plans (especially group plans) remain relatively consistent while you stay at the same job.

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Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Congressional Research Service. "U.S. Health Care Coverage and Spending," Page 1.

  2. BlueCross BlueShield of North Carolina. “What Is Cost Sharing?”

  3. HealthCare.gov. “​​Advance Premium Tax Credit (APTC).”

  4. Anthem. ”Your Simple Guide to Understanding the (Not-So-Simple) Health Insurance Claims Process.”

  5. Medicare.gov. "Health Maintenance Organization (HMO)." 

  6. HealthCare.gov. “Preferred Provider Organization (PPO).”

  7. HealthCare.gov. "Point of Service (POS) Plans."

  8. Medicare.gov. "Medicare Advantage Plans."

  9. Medicare.gov. "What's Medicare Supplement Insurance (Medigap)?"

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