Is it better to get health insurance through work or private

Updated December 01, 2020

For years, many people have relied on the health insurance provided by their employer to take care of the medical needs of their family.

But is that the right option, given rising healthcare costs? After all, now that the Affordable Care Act (ACA) has created state and federal exchanges, maybe you can save a few dollars and get the same amount of care if you go out on your own.

Before answering this question, it helps to understand a few key elements of health insurance through your employer versus personal plans.

How Does Employer Group Health Insurance Work?

As the name suggests, employer group health insurance plans cover multiple people — typically employees or those involved in an organization such as the American Association of Retired Persons (AARP), the Freelancers Union, and wholesale membership clubs. Members of group health plans get reduced rates, since the insurer’s risk is spread among a large number of people.1

Companies can purchase these group health insurance plans and offer them to their employees, who may accept or decline coverage. Some plans come in tiers with varying degrees of coverage. Premiums are typically split between employer and employee, further reducing cost. For an added cost, health insurance coverage may be extended to spouses and other employee dependents.2

Health Insurance Group Plans Often Take Two Forms:

HMO (Health Maintenance Organization). This model allows insurance carriers to keep costs low by contracting with a network of healthcare providers at agreed-upon fees, with savings passed on to members. In return, members must see in-network providers to be covered, and get referrals from their primary care physician (PCP) for specialists or other services, like physical therapy or mental health providers.3

PPO (Preferred Provider Organization). These plans offer more flexibility. Members do not have to see their PCP before visiting an in-network specialist, but costs tend to be higher. Added costs include seeing out-of-network providers.4

The Benefits of an Employer-Sponsored Group Health Insurance Plan:

• Lower premiums, because you’re often splitting the cost with your employer
• No legwork involved in choosing a plan
• Your contributions to the premiums can be made pretax, lowering your taxable income5

How Personal Health Insurance Works

If you’re not covered through work or are self-employed, you have a few personal health insurance options:

HealthCare.gov. Here you will learn about your options under the Affordable Care Act. Called the Federal Health Insurance Exchange or the Marketplace, it will clue you in to any subsidies you may qualify for and identify available health insurance plans by state.6

Medicare.gov. If you are retired or will be soon, visit this site to learn about what Medicare covers and if it’s the right choice for you.7

Private Health Insurance. If neither the Marketplace nor Medicare is an option for you, visit the websites of major health insurance companies to see what they offer in your area. You’ll find that premiums vary by state and ZIP code. However, until you factor in what you need in a health insurance plan, you won’t get a good sense of what you’ll be paying, since many companies post only the lowest available plan price.

Among the things to consider when selecting health insurance coverage:

• Copay cost
• Prescription drug coverage
• Pregnancy benefits
• Hospital coverage
• Vision and dental coverage
• In- and out-of-network benefits and cost
• Specialty coverage such as physical therapy or chiropractic care8

Thanks to the Affordable Care Act, there are more options for folks who do not want or cannot get employer health insurance coverage. If you’re confused about which is best for you, carefully review the ins and outs of each before identifying which option makes the most sense for you and your family.

If you are looking for an option to help manage your medical bills, consider healthcare financing through the CareCredit credit card. The CareCredit card is an easy way to pay for health and wellness care and offers promotional financing. *To apply, go to carecredit.com/apply.

If your employer doesn’t offer you health insurance as part of an employee benefits program, you may be looking at purchasing your own health insurance through a private health insurance company.

A premium is the amount of money that an individual or business pays to an insurance company for coverage. Health insurance premiums are typically paid monthly. Employers that offer an employer-sponsored health insurance plan typically cover part of the insurance premiums. If you need to insure yourself, you’ll be paying the full cost of the premiums.

It is common to be concerned about how much it will cost to purchase health insurance for yourself. However, there are various options and prices available to you based on the level of coverage that you need.

When purchasing your own insurance, the process is more complicated than simply selecting a company plan and having the premium payments come straight out of your paycheck every month. Here are some tips to help guide you through the process of purchasing your own health insurance.

Key Takeaways

• You may need to purchase individual healthcare coverage if you just turned 26 years old, are unemployed or self-employed, work part time, are starting a business that will have employees, or have recently retired.
• If you do not have the option of enrolling in an employer-sponsored health insurance plan, a good source for gaining insurance coverage is through the Health Insurance Marketplace that was created in 2014 by the Affordable Care Act (ACA).
• If you are at least age 65 or disabled, you can enroll in Medicare, with the option to add additional coverage through a private Medigap or Medicare Advantage plan.

How Buying Private Health Insurance Works

Some Americans get insurance by enrolling in a group health insurance plan through their employers.

Medicare provides healthcare coverage to seniors and the disabled, and Medicaid has coverage for low-income Americans.

Medicare is a federal health insurance program for people who are age 65 or older. Certain young people with disabilities and people with end-stage renal disease may also qualify for Medicare. Medicaid is a public assistance healthcare program for low-income Americans regardless of their age.

If your company does not offer an employer-sponsored plan, and if you are not eligible for Medicare or Medicaid, individuals and families have the option of purchasing insurance policies directly from private insurance companies or through the Health Insurance Marketplace.

Scenarios When You Might Need Private Health Insurance

There are certain circumstances that make it more likely that you will need to purchase your own health insurance plan, including:

A Young Adult 26 Years of Age or Older

Under provisions of the Affordable Care Act (ACA) of 2010, young people can be covered as dependents by their parents’ health insurance policy until they turn 26 years old. After that, they must seek out their own insurance policy.

Unemployed

If you lose your job, you may be eligible to maintain coverage through your employer’s health insurance plan for a period of time through a program called the Consolidated Omnibus Budget Reconciliation Act (COBRA). COBRA allows eligible employees and their dependents the option to continue health insurance coverage at their own expense. 

While coverage through COBRA can be maintained for up to 36 months (under certain circumstances), the cost of enrolling in COBRA is very high. This is because the formerly employed person pays the entire cost of the insurance. Typically, employers pay a portion of healthcare premiums on behalf of their employees.

A Part-Time Employee

Part-time jobs rarely offer health benefits. A part-time job is any position that requires employees to work a lower number of hours than would be considered full time by their employer, or 40 hours per week. If you work part time, you usually must enroll in your own health insurance.

Self-Employed

A self-employed person may work as a freelancer or own a business. Some self-employed people can get health insurance through a spouse’s plan. If not, they must provide their own health insurance.

A Business Owner Who Has Employees

If you start a business and you have employees, you might be required to offer them health insurance. Even if it’s not required, you might decide to offer health insurance to be a competitive employer that can attract qualified job candidates. In this situation, you will be required to purchase a business health insurance plan, also known as a group plan.

If You Retire (or Your Spouse/Parent Retires)

When you retire, you will likely no longer be eligible for employer-sponsored health insurance. If you are under age 65 and not disabled, you will need to purchase individual private health insurance until you turn 65 and can apply for Medicare. Many retirees choose to purchase private Medigap or Medicare Advantage plans in addition to Medicare as a way of guaranteeing more comprehensive coverage. Some retired people may also decide to completely replace Medicare coverage with a private Medicare Advantage plan.

It is important to note that Medicare, Medigap, and Medicare Advantage plans are only for the individual—your spouse, partner, and any dependents cannot be insured through your Medicare plan. This means that if your family was previously insured through your employer’s plan, and you retire, your family members may need to enroll in individual insurance plans.

Dropped by Your Existing Insurer

Although the ACA prevents insurers from canceling your coverage—or denying you coverage due to a preexisting condition or because you made a mistake on your application—there are other circumstances when your coverage may be canceled. It’s also possible that your insurance may become so expensive that you can’t afford it.

Why You Should Purchase Health Insurance

If you find yourself in one of the above situations and lack health insurance coverage, it’s important to enroll in an individual plan as soon as possible. (The fine for failing to obtain coverage was canceled in 2019.)

Even though you’re not required to have insurance, you cannot predict when an accident will occur that will require medical attention. Even a minor broken bone can have major financial consequences if you’re uninsured.

If you purchase insurance through the Health Insurance Marketplace, you may be eligible for income-based premium tax credits or cost-sharing reductions. The marketplace is a platform that offers insurance plans to individuals, families, and small businesses.

The ACA established the marketplace as a means to achieve maximum compliance with the mandate that all Americans be enrolled in health insurance. Many states offer their own marketplaces, while the federal government manages an exchange open to residents of other states.

While you may not be able to afford the same kind of plan that an employer would offer you, any amount of coverage is more advantageous than none. In the event of a major accident or a long-term illness, you will be prepared.

Choosing the Best Insurance Plan for You

There are several different kinds of health insurance plans, and each of these plans has a number of unique features.

Health Maintenance Organization (HMO)

A health maintenance organization (HMO) is a company with an organizational structure that allows them to provide insurance coverage for their subscribers through a specific network of healthcare providers.

Typical HMO features include paying for insurance coverage for a monthly or annual fee. Premiums tend to be lower for HMOs because health providers have patients directed at them, but the disadvantage is that subscribers are limited to accessing a network of doctors and other healthcare providers who are contracted with the HMO.

Preferred Provider Organization (PPO)

A preferred provider organization (PPO) is a type of insurance plan in which medical professionals and facilities provide services to subscribed clients at reduced rates. Healthcare providers that are part of this network are called preferred providers or in-network providers. 

Subscribers of a PPO plan have the option of seeing healthcare providers outside of this network of providers (out-of-network providers), but the rates for seeing these providers are more expensive.

Exclusive Provider Organization (EPO)

An exclusive provider organization (EPO) is a hybrid of HMO and PPO plans. With an EPO plan, you can only receive services from providers within a certain network. However, exceptions can be made for emergency care.

Another characteristic of an EPO plan is that you may be required to choose a primary care physician (PCP). This is a general practitioner who will provide preventive care and treat you for minor illnesses. In addition, with an EMO plan, you usually do not need to get a referral from your PCP to see a specialist physician.

High-Deductible Health Plan (HDHP)

A high-deductible health plan (HDHP) has a couple of key characteristics. As its name implies, it has a higher annual deductible than other insurance plans. A deductible is the portion of an insurance claim that the subscriber covers themselves. HDHPs typically have lower monthly premiums.

This type of plan is ideal for young or generally healthy people who don’t expect to demand healthcare services unless they experience a medical emergency or an unexpected accident.

The last defining feature of a high-deductible health plan is that it offers access to a tax-advantaged Health Savings Account (HSA).

HSA subscribers can contribute funds that can later be used for medical costs that their HDHP doesn’t cover. The advantage of these accounts is that the funds are not subject to federal income taxes at the time of the deposit.

Consumer-Driven Health Plan (CHDP)

Consumer-driven health plans (CDHPs) are a type of HDHP. A portion of services that subscribers receive is paid for with pretax dollars. Like other HDHPs, CDHPs have higher annual deductibles than other health insurance plans, but the subscriber pays lower premiums each month.

Point-of-Service (POS) Plan

A point-of-service (POS) plan provides different benefits to subscribers based on whether or not they use preferred providers (in-network providers) or providers outside of the preferred network (out-of-network providers). A POS plan includes features of both HMO and PPO plans.

Short-Term Insurance Policy

A short-term insurance policy covers any gap that you might experience in coverage if, for example, you change jobs and your new company plan doesn’t kick in immediately.

It typically lasts for three months. Term lengths vary by state, and in some U.S. states, you may be eligible for a short-term plan for up to 12 months.

Short-term health insurance is also called temporary health insurance or term health insurance. It can be useful if you’re changing jobs, waiting to become eligible for Medicare coverage, or waiting out the designated open enrollment period for a plan.

Under a short-term insurance plan, your spouse and other eligible dependents may also be covered. However, one important caveat of a short-term insurance plan is that in some cases, preexisting conditions can disqualify you from coverage. The definition of a preexisting condition varies depending on the state where you live, but it is usually defined as something you have been diagnosed with or received treatment for within the last two to five years.

Catastrophic Coverage

Catastrophic health insurance is a type of insurance plan that is typically only available to adults ages 30 or younger. To qualify, you must receive a hardship exemption from the government. Catastrophic health insurance typically has lower premiums than other health insurance plans.

These types of plans are intended for people who cannot afford to spend much money every month on insurance premiums but don’t want to be without insurance in the event of a serious accident or illness.

While catastrophic health insurance plans may have low monthly premiums, they typically have the highest possible deductibles.

Choosing a Deductible

Once you’ve decided on the type of plan that is best for you, you’ll need to determine how much you can afford to pay as a deductible. This is the predetermined amount that you pay for covered healthcare services before your insurance plan starts to pay.

What can you afford to pay in out-of-pocket medical expenses each year? With most health insurance plans, the higher your deductible is, the lower your monthly premium will be. If your monthly cash flow is low, you might have to opt for a higher deductible.

Another key consideration when selecting an insurance plan is the plan’s out-of-pocket maximum. After you’ve spent this amount on deductibles and medical services through co-payments and co-insurance, your health plan will pay the entire cost of covered benefits.

How Much Does Private Health Insurance Cost?

While many people are scared by the prospect of purchasing their own insurance versus enrolling in an employer-sponsored plan, some studies have shown that it can end up being more affordable than employer-sponsored plans.

A study from the Kaiser Family Foundation found that the average monthly premium for an employer-sponsored insurance plan for individual coverage in 2021 was around $645 and $1,850 for family coverage. If you were to purchase your own insurance outside of an employer-sponsored plan, the average cost of individual health insurance was $438. For families, the average monthly premium was $1,168.

In addition, if you end up purchasing coverage through the Health Insurance Marketplace, you may qualify for a Cost-Sharing Reduction subsidy and Advanced Premium Tax Credits. These can lower your premium payment amounts, your deductible, and any co-payments and co-insurance for which you are responsible.

Where to Go to Buy Private Health Insurance

You have several options when it comes to buying private health insurance.

Medicare.gov

If you are (or are soon to be) retired, you can begin on the Medicare website. It is recommended that you see what the standard Medicare plan covers and then look at options for ways to supplement Medicare through Medigap and Medicare Advantage policies.

When considering Medigap or Medicare Advantage coverage, it’s important to understand how both work types of coverage work in conjunction with standard Medicare coverage.

HealthCare.gov

As a result of the ACA, the Health Insurance Marketplace was created in 2014. You can visit the Health Insurance Marketplace website to find out more about the options for health insurance coverage that are available where you live. You can also determine if you qualify for any subsidy and apply for it.

The marketplace has a specific open enrollment period. Typically, it is from Nov. 1 to Dec. 15 every year, although various events may lead to the open enrollment period being extended or reopened.

The website includes information about private plans that are available for purchase outside of the marketplace. However, if you purchase a plan outside of the marketplace, whether during open enrollment or not, then you will not be eligible for any subsidies available under the ACA.

Under certain circumstances, an individual may be eligible to purchase a healthcare plan through the exchange even if it is outside of the specified open enrollment period. This is called a Special Enrollment Period. You may be eligible for a Special Enrollment Period if you experience a household change, including getting married or divorced, having or adopting a child, a death in your family, moving, losing your health insurance, being in a national catastrophe, or experiencing a disability.

The American Rescue Plan of 2021 increased subsidies for ACA plans for lower-income Americans and broadened subsidies to include some subsidies at higher income levels.

Private Health Insurance Companies

You can visit the websites of major health insurance companies in your geographic region and browse available options based on the type of coverage that you prefer and the deductible that you can afford to pay.

The types of plans available and the premiums will vary based on the region where you live and your age. It’s important to note that the plan price quoted on the website is the lowest available price for that plan and assumes that you are in excellent health. You won’t know what you’ll really pay per month until you apply and provide the insurance company with your medical history.

Pricing and the type of coverage can vary significantly based on the health insurance company. Because of this, it can be difficult to truly compare the plans to determine which company has the best combination of rates and coverage. It can be a good idea to identify which plans offer the most of the features that you require and are within your price range, then to read consumer reviews of those plans.

If you are choosing a family plan or are an employer who is choosing a plan that you’ll provide to your employees, then you’ll also want to consider the needs of others who will be covered under the plan.

Key Factors for Choosing a Plan

Health insurance plans offer a variety of different features. While it may be hard to find a plan that offers everything you desire, consider which of the following features are the most medically and financially necessary. Here are some questions to consider when you are researching plans:

• Does the plan offer prescription drug coverage? Does it only cover generic versions of prescription drugs? What is the co-payment (also referred to as the co-pay) on generics and name-brand drugs? Check the medicines you’re already taking, if any.
• What is the office visit co-payment, and does the plan have instituted a maximum number of office visits that it will cover per year?
• What is the co-payment for specialized services, such as X-rays, lab tests, and surgery? How about for an emergency room visit?
• Do you want a plan that allows you to add vision and dental coverage?
• Do you need pregnancy benefits?
• Do you already have a doctor who you like? If so, you might want to find a plan that includes your doctor in its insurance company’s provider network.
• Do lifetime and annual maximum benefits apply? The ACA effectively eliminated lifetime and annual maximums for essential medical services, but this does not include dental and vision coverage, for example.
• Does the plan offer free or discounted services for preventive care, such as an annual checkup? Most plans under the ACA provide free coverage for most preventive care services. Short-term insurance plans and catastrophic coverage may not.
• Does the plan cover specialty services such as physical therapy, chiropractic, and acupuncture visits?
• What hospitals are included in the network?
• For PPOs, what is the cost for out-of-network services, should you want or need them? Can you afford this?

When Can I Buy Private Health Insurance?

Most types of health insurance have an open enrollment period during which you can sign up for private health insurance. This is true whether you buy insurance via the Affordable Care Act (ACA) health insurance exchange in your state, sign up directly through the insurer, enroll in the plan that your employer offers, or sign up for Medicare.

Certain life events can trigger a special enrollment period, which will allow you to change your health insurance coverage outside of the normal enrollment period. These events include getting married or divorced, having a baby, losing your job-based health insurance, or moving out of your health plan’s service area.

What Does Private Health Insurance Cost?

In 2021, the average national cost for health insurance per year was $7,739 for single coverage and $22,221 for family coverage. However, this cost can vary considerably depending on your healthcare needs, the state where you live, and what level of coverage you require.

Where Can I Buy Private Health Insurance?

A good place to start looking for coverage is the Health Insurance Marketplace created in 2014 by the ACA. On the marketplace for your state, you can look through the details of private health insurance plans and compare the cost and benefits of each. If your state does not have its own marketplace, use HealthCare.gov.

The Bottom Line

Getting your own health insurance policy is not as easy as signing up for an employer’s plan, but at least you have control over the plan that you get. Once you figure out what you need and become familiar with the terminology used to describe health insurance plans, your research will become easier. With the number of options available, you can probably find a plan that meets both your needs and your budget.

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