Individual health insurance is health insurance coverage purchased by an individual for themselves and/or their family only. Although the term private health insurance is often used in this context, individual health insurance defines it more accurately. A health plan offered through an employer is not considered individual health insurance.
Individual health insurance plans are vastly different than group health plans, Medicare, and Medicaid coverage. When it comes to individual plans, one should expect higher deductibles and out-of-pocket maximums, more out-of-pocket expenses, and some limitations on coverages.
Most of the premium (cost of insurance) for group and government-sponsored coverage is paid for on the back end, leaving low rates or no costs for the insured. With individual plans, the full premium cost is the responsibility of the individual, making rates for individual plans higher.
How do I know if I need individual health insurance?
A vast majority of the U.S. population that has health insurance is covered by a plan through their job, or through government programs like Medicare, Medicaid, Tricare, or the VA. In fact, about 50% of the insured population has coverage through their employer, while only about 10% have individual coverage. The rest of the insured population has coverage through Medicare, Medicaid, or the Military.
Because individual health insurance serves only a small minority, it is an unpopular subject for policymakers and insurance companies. This has resulted in fewer choices and higher out-of-pocket costs for people with individual coverage.
So, with all these downsides, why would anyone enroll in individual health insurance in the first place? The truth of the matter is if you do not have access to employer or government-sponsored coverage, individual health insurance is your only option. Although this is a minority segment of the population, millions of people still fall into this category.
If not for these individual plans, some people would be without health insurance, putting them at significant financial risk if they incur high medical expenses due to an illness or injury. Medical debts are the leading cause of bankruptcy in the U.S.
Common examples of people who will need individual health insurance include:
- Self-employed workers
- Retirees younger than 65 years old
- People who are not offered coverage through their employer (common for small business employees)
- Someone who is in between jobs that offer coverage
If any of the above applies to you, an individual plan would be your only option to obtain health insurance.
Health insurance coverage types among the insured U.S. population. Data from the United States Census Bureau
If I’m offered health coverage through my job, should I consider individual health insurance?
The simple answer is no, if you’re offered health coverage through your job, it’s almost always your best option. Individual health insurance should only be considered if you DO NOT have access to an employer-sponsored group plan. Group plans are generally less expensive and offer more comprehensive coverage benefits when compared to individual plans.
There are some rare exceptions to this rule, however. One example where someone with a group plan would need to consider an individual plan is if their group plan has significantly high monthly premiums. This most often occurs if an employer pays for the cost of the employee’s coverage, but to include the employee’s family members is quite expensive. In that case, it makes sense to consider an individual plan for the rest of the family.
What are the different types of individual health insurance?
There are three primary types of individual health insurance. They are offered by many different insurance companies and vary slightly in terms of price, coverage, and networks, but each type is essentially the same coverage across insurers.
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, but it can be quite expensive.
Another downside of marketplace plans is 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.
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. 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.
Coverages for short-term plans are generally very simple and straightforward. Nearly all medical expenses are paid out of pocket 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 it 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 only need health insurance 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.
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, injuries, and everyday needs such as doctor visits, preventative care, and prescription drugs. These benefits are a fixed dollar amount that is paid directly to the healthcare provider, and if any additional balance is due, that’s what you pay. If the benefit is more than the cost of the healthcare service, you get a check from the insurance company for the remainder to spend however you like.
Defined benefit plans are great for the involved healthcare consumer, as those who pay attention to healthcare pricing and shop around 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 an expensive claim. Defined benefit plans are not major medical, as they do not provide an out-of-pocket maximum, also known as a “stop-loss” in insurance terms.
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 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
Individual health insurance can seem complicated, but with a few key things to keep in mind like who it’s for and the different types, it starts to make a lot more sense.
Whether it’s your first time looking into individual health insurance or you’re making a change from one type to another, it’s important to keep in mind there truly isn’t one perfect solution, and there is only a small handful of options. Each type of individual plan has its benefits and drawbacks, and everyone’s needs and cost concerns are different. To help guide you through the process, it’s always best to talk to an expert individual health insurance broker.
This information is provided by HealthCare Advisors, a Cincinnati, Ohio-based individual health insurance broker dedicated to helping folks find the plan thats right for them, for the right value. Our services are available for residents of OH, KY, IN, FL, GA, NC, MI, AZ, MO, SC, TN. CLICK HERE to schedule a free, no-obligation phone consultation to learn more about your health insurance options.