Individual health insurance is medical coverage acquired and paid for entirely by an individual and/or their immediate family. Although the term private health insurance is often used in this context, private insurance companies are involved with individual, group, and public health insurance policies. In addition, public policy and regulations affect all aspects of insurance, so there truly are no private health insurance policies.
Individual health insurance is mostly utilized by the self-employed, people who don’t get offered health coverage through their employer, or retirees prior to becoming eligible for Medicare at age 65.
Fundamentally, there are only three types of individual health insurance to choose from. Yes, that’s right, only three overall categories, each of which offers different levels of coverage and costs. While there are many different insurance companies and plans within these types, each type offers relatively the same level of coverage, with small differences in out-of-pocket and premium costs.
Many people who are used to group coverage and end up needing individual coverage find it difficult to understand that in fact there are only a small handful of options for individual health insurance, and there is no one perfect solution. Because individual health insurance only affects a small segment of the population, it’s an unpopular topic among regulators and insurance companies, leaving fewer choices.
Let’s go over the three types of individual health insurance, how they work, and the benefits and drawbacks of each.
1. Health Insurance Marketplace
The Health Insurance Marketplace, which is also known as the ACA (Affordable Care Act) or Obamacare marketplace offers a variety of individual plans. These are the only individual plans that do not have health underwriting requirements or pre-existing condition exclusions. They also make government-funded subsidies available dependent on household income, making them more affordable in some cases. If you do not qualify for Marketplace subsidies, you can still enroll at the full cost of the plan, which can be quite expensive.
Aside from high premium costs without a subsidy, another downside of Marketplace plans is that they all use HMO medical networks, which are more restrictive about where you can go for in-network providers. However, Marketplace plans offer the most complete and comprehensive coverage available on the individual health insurance market.
Aside from special circumstances such as losing group coverage or moving, Marketplace plans can only be enrolled in during the annual enrollment period, which takes place each year from November 1st to December 15th. Plans enrolled during the annual enrollment period will become effective on January 1st of the new year.
2. Short-Term Medical
Short-term medical plans are NON-ACA plans that are guaranteed for a certain period of time before a new application is required to continue coverage. Term lengths can be as little as 30 days and as much as 3 years depending on what your state allows. After the term is over, you can re-apply for another term if available. Short-term plans can be canceled at any time without penalty if you don’t need them for the entire term length.
Because short-term plans are not part of the ACA marketplace, individuals applying for a short-term plan must meet certain health underwriting requirements, so some health conditions may result in ineligibility. The most common disqualifying health factors are any consultation, treatment, or medication related to heart conditions, diabetes, or cancer within the last 5 years or more depending on the specific eligibility requirements of the insurance company.
Coverages for short-term plans are generally very simple and straightforward. Nearly all medical expenses are paid out of pocket by the policyholder until the deductible is reached, then the plan pays the rest or most of the remaining costs. This type of coverage is reminiscent of what is commonly referred to as “catastrophic coverage”. The intent is that coverage is in place in case a major unforeseen injury or illness occurs. However, short-term plans can have certain coverage limitations and exclusions when compared with marketplace plans.
Due to the simple structure, medical underwiring, and term limits, short-term plans have the most affordable monthly premiums when compared to other options for individuals. This makes short-term plans great for those in relatively good health and are looking for low premiums, only need health insurance just in case of a catastrophic claim, or only need it for a short period of time. They also tend to use national PPO networks, so you’ll have a lot more flexibility and choice in finding in-network providers.
3. Defined Benefit/Fixed Indemnity
Defined benefit plans, also known as fixed benefit or fixed indemnity plans provide predetermined benefits to offset your healthcare expenses. These include benefits for hospitalization, surgery, and everyday needs such as doctor visits, preventative care, and prescription drugs. These benefits are a dollar amount that is paid directly to the healthcare provider, and if any additional balance is due, that’s what you pay. If the defined benefit is more than the actual cost of the healthcare service, you will get a check from the insurance company for the remainder to spend however you like.
Defined benefit plans are great for the savvy healthcare consumer, as those who pay attention to healthcare pricing can get the most out of these plans. However, the fixed benefits are the same regardless of the medical bill, so people with these plans are at risk of high out-of-pocket expenses in the event of a major claim. Defined benefit plans are not major medical, as they do not provide an out-of-pocket maximum, a.k.a. a “stop-loss”.
Similar to short-term plans, because defined benefit plans are also NON-ACA plans, health underwriting is also required. Some people won’t be eligible for these plans, especially if they have a recent history or ongoing treatment for significant health issues.
Fixed indemnity plans are best when used as a supplemental plan in combination with a short-term or marketplace plan. Because they do not provide an out-of-pocket maximum, they can be risky as a standalone plan when it comes to catastrophic claims, though exceptionally healthy individuals may be able to afford to take on the extra risk.
When it comes to cost, defined benefit plans are very affordable. They also don’t have any network requirements, so there are no limitations on where you can go to receive care. In addition, unlike short-term plans, they do not have a term limit, so coverage remains in force for as long as you need it.
Conclusion
There are many misunderstandings and misnomers about individual/family health insurance. It’s extremely important to know what you’re getting into before you sign up for a plan and understand its positive and negative attributes.
The biggest takeaway that people who need or will need individual health insurance should understand is there are only a small handful of options, and there is no one perfect solution. Many people in need of an individual plan for the first time seek out a plan with a low deductible, copays, and low premium costs reminiscent of what they may have had through a previous employer or prior to the passing of the Affordable Care Act. These “unicorn” plans simply do not exist, and accepting that will save you a lot of time and frustration. When choosing an individual plan, compromises must be made one way or the other, whether that be cost, coverage, network, etc.
Understandably, this is a lot of information to take in, and many people don’t have the time to properly do hours of research and comparing plans. That’s why talking to an expert health insurance agent/broker is crucial if you’re in need of individual health insurance.
This information is provided by HealthCare Advisors, a Cincinnati, Ohio-based individual health insurance broker dedicated to helping folks find the plan that’s right for them, for the right value. Our services are available for residents of OH, KY, IN, FL, GA, NC, MI, AZ, MO, SC, and TN. CLICK HERE to schedule a free, no-obligation phone consultation to learn more about your health insurance options.