Private Health Insurance

Shawn Plummer

CEO, The Annuity Expert

Navigating the options available when it comes to healthcare can be confusing. One option you may have heard of is private health insurance. Private health insurance is a form of insurance that can help cover the costs of medical care. In this guide, we will dive into private health insurance, how it works, and the pros and cons to help you better understand if it’s the right option.

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What Is Private Health Insurance?

Private health insurance refers to a type of insurance coverage that individuals or families can purchase from private insurance companies to help cover the costs of medical expenses. Unlike public health insurance programs provided by the government, private health insurance is voluntary and typically requires individuals to pay regular premiums in exchange for various benefits and coverage options. Private health insurance plans often offer a broader range of services, including access to a more comprehensive network of healthcare providers, shorter treatment waiting times, and additional dental or vision care services.

The coverage and costs vary depending on the chosen plan, and individuals can customize their policies based on their specific healthcare needs and budget. Private health insurance aims to give individuals greater control and flexibility over their healthcare options, supplementing public healthcare systems or providing an alternative for those who prefer private healthcare services.

Private Health Insurance

How Does Private Health Insurance Work?

Here’s how private health insurance generally works:

  • Coverage Options: Private health insurance plans offer various options, including family plans specifically tailored for businesses or organizations and an individual health insurance plan. These plans often come with different levels of coverage and premiums.
  • Premiums: Policyholders pay regular premiums to the insurance company to maintain their coverage. Premiums can be paid monthly, quarterly, or annually, depending on the policy terms.
  • Coverage Benefits: Private health insurance plans typically cover various medical services and treatments, including hospital stays, surgeries, diagnostic tests, prescription medications, specialist consultations, and preventive care. The coverage and extent of benefits can vary depending on the specific plan and policy terms.
  • Network of Providers: Insurance companies often have a network of healthcare providers, including hospitals, doctors, specialists, and pharmacies, with which they have negotiated contracts. These providers are considered “in-network” and offer policyholders discounted services. It’s important to note that some plans also offer coverage for out-of-network providers, but the cost-sharing may be higher.
  • Deductibles: A deductible is the amount policyholders must pay out of pocket for covered services before the insurance coverage kicks in. For example, if a policy has a $1,000 deductible, the policyholder must pay the first $1,000 for eligible healthcare expenses before the insurance starts covering the remaining costs.
  • Copayments and coinsurance: After meeting the deductible, policyholders may be required to pay copayments or coinsurance for covered services. Copayments are fixed amounts (e.g., $20 per doctor visit), while coinsurance is a percentage of the total cost (e.g., 20% of the bill). The insurance company covers the rest of the expenses based on the policy terms.
  • Preauthorization: Some private health insurance plans require preauthorization for particular services or procedures. This means that policyholders must obtain approval from the insurance company before receiving specific treatments or tests to ensure they meet the plan’s criteria for coverage.
  • Exclusions and Limitations: Private health insurance policies often have exclusions and limitations that outline what services or treatments are not covered. Standard exclusions include cosmetic procedures, fertility treatments, experimental treatments, and certain pre-existing conditions. Therefore, it’s essential to carefully review the policy terms to understand what is covered and what is not.
  • Portability: Private health insurance is often portable, meaning individuals can maintain their coverage even if they change jobs or move to a different location. However, the terms and availability of coverage may vary depending on the insurance provider and policy.
What Is Private Health Insurance

What Does Private Health Insurance Cover?

Private health insurance coverage can vary depending on the policy and insurance provider. However, private health insurance plans typically cover a range of medical services and treatments. Here are some common areas of coverage:

  • Hospital Services: Covers hospital stays, including room charges, nursing care, and other hospital services. It may also include coverage for surgeries, anesthesia, and intensive care.
  • Medical Specialists: Cover consultations and treatments by medical specialists, such as cardiologists, dermatologists, neurologists, and oncologists.
  • Outpatient Services: Coverage may extend to outpatient services, including diagnostic tests (X-rays, blood tests, and MRIs), laboratory services, and outpatient surgeries.
  • Prescription Medications: Coverage for prescription medications, although the extent of coverage may vary. Some plans have formularies or lists of approved drugs, while others may cover a broader range of medications.
  • Preventive Care: Many private health insurance plans cover preventive care services, such as vaccinations, routine check-ups, screenings (such as mammograms and colonoscopies), and wellness visits.
  • Maternity and Obstetrics: May cover prenatal care, childbirth, and postnatal care. This can include doctor visits, ultrasound scans, prenatal testing, and delivery expenses.
  • Mental Health and Substance Abuse: Coverage for mental health services, including therapy sessions and psychiatric consultations. Substance abuse treatment may also be covered, including inpatient rehabilitation programs.
  • Rehabilitation Services: Coverage may extend to rehabilitative services, such as physical therapy, occupational therapy, and speech therapy. This can be beneficial for individuals recovering from injuries or managing chronic conditions.
  • Dental and Vision Care: Optional coverage for dental care, including routine cleanings, fillings, and orthodontics. Vision care coverage may include eye exams, prescription glasses, and contact lenses.

Types Of Private Health Insurance Plans

Several types of private health insurance plans are available, each offering different levels of coverage and flexibility. However, here are some common types:

  • Health Maintenance Organization (HMO) Plans: HMO plans typically require policyholders to choose a primary care physician (PCP) who is the main point of contact for all healthcare needs. PCPs coordinate referrals to specialists within the HMO network. As a result, HMO plans often have lower premiums and require policyholders to receive care within the network, except in emergencies or with prior authorization.
  • Preferred Provider Organization (PPO) Plans: PPO plans offer more flexibility in choosing healthcare providers. Policyholders can visit both in-network and out-of-network providers, although the cost-sharing is usually higher for out-of-network services. PPO plans generally do not require a referral to a specialist and allow policyholders to seek care without PCP involvement. These plans tend to have higher premiums compared to HMO plans.
  • Exclusive Provider Organization (EPO) Plans: EPO plans combine features of both HMO and PPO plans. Like HMOs, they typically require policyholders to choose a primary care physician and stay within the network for coverage, except in emergencies. However, EPO plans do not usually require referrals to see specialists.
  • Point of Service (POS) Plans: POS plans offer a blend of HMO and PPO features. Policyholders choose a primary care physician within the network and need referrals to see specialists. However, POS plans also allow policyholders to seek care outside the network, albeit with higher out-of-pocket costs.
  • High-Deductible Health Plans (HDHPs): HDHPs have higher deductibles than traditional health insurance plans. They often pair with Health Savings Accounts (HSAs), which allow policyholders to save pre-tax dollars to pay for qualified medical expenses. In addition, HDHPs can be coupled with various provider network options, such as HMOs or PPOs.
  • Catastrophic Health Insurance Plans: These plans provide coverage for major medical expenses and are typically available to young individuals or those who qualify for hardship exemptions. Catastrophic plans have lower premiums but high deductibles, making them suitable for emergencies or unexpected severe medical conditions.
Covers Cost Of Doctor Visits, Including Consultations With Specialists.

Pros And Cons Of Private Health Insurance

Private health insurance has both advantages and disadvantages. Here are some of the pros and cons associated with private health insurance:


  • More Comprehensive Coverage: Private health insurance often provides more extensive coverage than public or government-funded health insurance programs such as Medicaid. It may include a broader range of services, treatments, and medications, giving policyholders greater access to healthcare options.
  • Shorter Wait Times: Private health insurance can offer shorter wait times for elective surgeries, specialist consultations, and diagnostic tests. This can benefit individuals who require timely medical attention or prefer faster access to healthcare services.
  • Access to a Wide Network of Providers: Private health insurance plans typically have networks of healthcare providers, including hospitals, doctors, and specialists. This allows policyholders to choose from various providers and facilities for their healthcare needs, giving them more flexibility and control over their treatment options.
  • Additional Services and Benefits: Private health insurance plans often offer additional services such as dental care, vision care, mental health support, and preventive care. These extra benefits can contribute to overall well-being and preventive healthcare beyond what public insurance programs cover.
  • Coverage for Out-of-Pocket Expenses: Private health insurance can help mitigate out-of-pocket expenses associated with healthcare, such as deductibles, copayments, and coinsurance. This can provide financial protection and peace of mind, especially for individuals with high medical costs.


  • Cost: Private health insurance can be more expensive than public health insurance options, primarily due to the broader coverage and additional benefits provided. Premiums, deductibles, copayments, and coinsurance can all contribute to the overall cost of private health insurance. As a result, affordability may be a concern for individuals with limited financial resources.
  • Coverage Limitations and Exclusions: Private health insurance policies often have coverage limitations and exclusions. Specific treatments, pre-existing conditions, and elective procedures may not be covered or have specific waiting periods. It’s crucial to carefully review the policy terms and understand what is covered and what is not.
  • Complex Plans and Policies: Private health insurance plans can be complex, with various plan options, coverage levels, and terms. Understanding the policy details, including deductibles, copayments, network restrictions, and preauthorization requirements, can be challenging for some individuals.
  • Potential for Denials and Administrative Hassles: Private health insurance companies may deny coverage for certain services, treatments, or medications based on medical necessity or other factors. Dealing with claim denials, appeals, and administrative processes can be time-consuming and frustrating for policyholders.
  • Limited Portability: Private health insurance plans may have limitations on portability, meaning that coverage may be impacted if you change jobs, move to a different location, or switch insurance providers. This lack of portability can lead to disruptions in coverage and potential gaps in healthcare protection.

How Is The Price Of Private Health Insurance Determined?

The price of private health insurance is determined by several factors that insurance companies consider when calculating premiums. While the specific factors and their weightings may vary among insurance providers, here are some common elements that influence the price of private health insurance:

  • Age: Age is a significant factor in determining health insurance premiums. Generally, older individuals tend to have higher healthcare utilization and may require more medical services, leading to higher premiums than younger individuals.
  • Health Status: The health condition of the insured individual or group is an essential consideration. Insurance companies may assess pre-existing conditions, medical history, and current health status to determine the risk of insuring the individual or group. Individuals with existing health issues may face higher premiums or exclusions for specific conditions.
  • Coverage Level: The extent of coverage and benefits the health insurance plan provides affect the premium. Plans with more comprehensive coverage, lower deductibles, and higher limits on services tend to have higher premiums than plans with limited coverage options.
  • Deductibles and Cost-Sharing: The amount of deductible and cost-sharing the policyholder requires can impact the premium. Plans with higher deductibles and higher cost-sharing (e.g., copayments and coinsurance) often have lower premiums because the policyholder shares a more significant portion of the cost.
  • Geographic Location: Health insurance premiums can vary based on the geographic location of the insured individuals or group. Factors such as local healthcare costs, availability of medical services, and regional regulations can influence the price of insurance coverage.
  • Tobacco Use: Insurance companies often consider tobacco use a risk factor due to its association with various health conditions. Individuals who use tobacco products, such as cigarettes or chewing tobacco, may face higher premiums than non-smokers.
  • Plan Type and Options: The private health plan chosen, such as HMO, PPO, or high-deductible plan, can affect the premium. Plans with greater flexibility and a more comprehensive network of providers may have higher premiums than more restricted or limited network plans.
  • Group Size: For employer-sponsored health insurance plans, the size and demographics of the group being insured can impact premiums. Insurance companies may consider factors like the average age and health status of the group and the claims history when determining the price.
  • Administrative Costs and Profit Margin: Insurance companies include administrative costs and a profit margin in their premium calculations. These costs cover overhead expenses, marketing, claims processing, and the insurer’s desire to profit.
Epo Health Insurance Pros And Cons

When might you need to buy private health insurance?

There are several situations where purchasing private health insurance can be beneficial. Here are some scenarios in which individuals might consider purchasing health insurance:

  • Limited or Inadequate Public Health Coverage: In countries where public or government-funded health insurance programs offer limited coverage or have long wait times for specific treatments, individuals may opt for private health insurance to gain access to a broader range of healthcare services and reduce waiting periods.
  • Desire for Additional Coverage: Public health insurance programs often provide basic coverage, but individuals may want more comprehensive benefits, such as coverage for elective surgeries, alternative therapies, specialized treatments, or access to a broader network of healthcare providers. Private health insurance can provide these additional benefits beyond what public programs offer.
  • Flexibility and Choice of Providers: Private health insurance plans often allow individuals to choose their healthcare providers, including specialists and hospitals. This flexibility can be crucial for individuals who have specific healthcare preferences, pre-existing relationships with certain providers, or who want the freedom to seek care from a broader range of doctors and facilities.
  • Employment or Self-Employment: Employers commonly offer Private health insurance as a benefit. If an employer does not provide health insurance coverage, or if an individual is self-employed or works freelance, purchasing private health insurance becomes necessary to ensure access to healthcare services.
  • Transition Periods: Private health insurance can be helpful during transitional periods, such as when an individual is between jobs or recently graduated and is no longer eligible for coverage under their parent’s insurance. It provides temporary coverage until other options become available.
  • The Desire for Shorter Wait Times: Private health insurance may offer shorter waiting periods for elective surgeries, specialist consultations, and diagnostic tests. Individuals who prefer faster access to healthcare services or need immediate attention may opt for private health insurance to avoid long waiting lists.
  • Personalized Coverage: Private health insurance plans often allow individuals to customize their coverage based on specific needs and preferences. This can include options for dental care, vision care, mental health services, or other specialized treatments not typically covered under public health insurance programs.
  • Peace of Mind and Financial Protection: Private health insurance provides individuals security and financial protection against unexpected medical expenses. It can help mitigate the risk of high out-of-pocket costs associated with healthcare services, especially for individuals with chronic conditions or those who anticipate the need for specialized treatments.

Next Steps

In conclusion, private health insurance can provide families and individuals with the financial security they need in case of unexpected medical bills. The benefits of private health insurance far exceed the potential risks and costs associated with taking out a policy. Making sure people have access to quality and affordable healthcare should be a priority for everyone. We invite you to look at the right health insurance plan by comparing rates for different coverage levels and determining if discounts are available. If you have previously been uninsured and are looking for coverage, now could be the perfect time to start. Don’t forget to request a free quote to make an informed decision on your healthcare coverage plan.

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Frequently Asked Questions

Is health insurance tax deductible?

If you pay for health insurance with pre-tax dollars, you cannot claim it as a deduction on your tax return. However, if you itemize your tax return, you may be able to deduct health insurance premiums you paid with post-tax dollars.

Which is more common, HMO or PPO?

In 2020, more covered workers chose PPO plans over HMO plans. Specifically, 47% of covered workers with employer-supplied health insurance plans opted for PPOs, while only 13% chose HMOs.

How has the Affordable Care Act impacted the availability and affordability of private health insurance?

The Affordable Care Act has increased the availability of private health insurance by establishing health insurance marketplaces, expanding Medicaid, and implementing regulations to improve affordability and access to coverage.

How does short-term health insurance differ from traditional private health insurance plans?

Short-term health insurance differs from traditional private health insurance plans by providing temporary coverage for a limited duration, typically offering less comprehensive benefits and fewer consumer protections.

What are the key benefits and features of individual family health insurance plans?

Individual family health insurance plans provide coverage for individuals and their family members, offering benefits such as comprehensive medical services, preventive care, and the flexibility to customize coverage to meet specific family needs.

What is the Children’s Health Insurance Program (CHIP)?

The Children’s Health Insurance Program (CHIP) is a government program in the United States that provides affordable health insurance coverage for children from low-income families who do not qualify for Medicaid.

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Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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