Private health insurance is health insurance not offered by state or federal government. Most Americans have private group health insurance through their employers. After that, Medicare and Medicaid, both public programs, cover the next largest population groups. Finally, there is insurance not offered by an employer, also known as individual private health insurance. This coverage can also include your family, depending on the policy you choose.

If you have reached a point where you need to select some form of individual private health insurance, read on for some tips to guide you in the process.

Key Takeaways

  • You may need individual private coverage if you just turned 26, are unemployed or self-employed, work part-time, are starting a business, or recently retired.
  • The best sources of private coverage are likely through the ACA Health Insurance Marketplace or, if retired, Medigap or Medicare Advantage.
  • Individual private health insurance is often either more expensive—or offers less coverage—than other types of health insurance.

When You Might Need Private Health Insurance

Private health insurance is sometimes required if you are:

  • A young adult 26 years of age or older. Under provisions of the Affordable Care Act (ACA), young people can be covered by their parents’ health insurance plan until their 26th birthday at which point that coverage is no longer available.
  • Unemployed. If you lose your job because of downsizing or resignation, you are most likely eligible to continue with your employer's health insurance plan under COBRA, except that you will have to pay its full cost yourself—the employer won't subsidize part of the cost like it did when you were an employee. You may want less-expensive private coverage instead. Eventually, COBRA coverage will run out and, if you are still unemployed, you will need to find your own insurance. If you lose your job because you were fired rather than a victim of downsizing, you are not eligible for COBRA and you'll need to find your own insurance right away.
  • A part-time employee. Part-time jobs rarely offer health benefits. If you work part-time, you usually must supply your own health insurance.
  • Self-employed. Unless you can be covered under a spouse or partner who is a W-2 employee, you must provide your own health insurance if you work for yourself.
  • An employer. If you start a business that has employees, laws might require that you offer them health insurance. Even if it is not required, you might want to offer it to be a competitive employer who can attract qualified job candidates. In this situation, you will have to shop for a business health insurance plan, also known as a group plan.
  • Retired (or spouse/parent retires). When you retire, you will likely no longer be eligible for employer-sponsored health insurance. If you are under 65 and not disabled, you will need individual private insurance until you turn 65 and can apply for Medicare. Even after signing up for it, many retirees purchase private Medigap or Medicare Advantage plans to supplement or replace Medicare coverage. By the way, Medicare, Medigap, and Medicare Advantage plans are truly individual—no family coverage allowed. This means that families previously insured through the retiree's employer may need private insurance when that person retires.
  • Dropped by your existing insurer. Although the ACA prevents insurers from canceling your coverage or penalizing you for a pre-existing condition—or because you made a mistake on your application—there are other circumstances under which your coverage may be canceled or become so expensive you can’t afford it. These include certain grandfathered individual plans purchased before March 23, 2010, intentionally falsifying an application, and failure to pay premiums.

See below under Healthcare.gov, to learn the situations that may allow you to register for Affordable Care Act insurance outside of the annual ACA open enrollment period. You have only 60 days to take advantage of this exception, so don't delay. If you don't fit into any of these situations, you may need to buy private insurance outside this program, which could cost you more.

Why You Shouldn't Skip Health Insurance

If you find yourself in one of the above situations, don't go without coverage for even a day. Even though there is no longer an ACA fine for not having coverage, it's still one of the most crucial life expenses.

Even a small emergency like a broken bone can ruin you financially if you're uninsured. These things are called "accidents" for a reason—you can't predict when they will occur. No one expects to get hit by a car while going for a walk or to fall down the basement stairs when carrying the laundry, but these things happen, and they can be expensive without health insurance.

If you think you can't afford insurance, you might be wrong. While there is a lot of hype in the media about the rising cost of healthcare, health insurance plans are available at a variety of prices including through the ACA Health Insurance Marketplace, with income-based premium tax credits or cost-sharing reductions if you qualify.

You might not be able to afford the kind of plan an employer would offer, but any plan is better than no plan. At a minimum, you want to be covered in the event of a major incident, such as the onset of a long-term illness or the broken bone that sends you to a hospital.

Most people have private insurance through their employer, followed by public insurance (Medicare/Medicaid) and, finally, individual private coverage.

Which Type of Plan, What Deductibles

Decide whether you want (assuming you have a choice) a health maintenance organization (HMO), an exclusive provider organization plan (EPO), preferred provider organization (PPO), high-deductible health plan (HDHP), consumer-driven health plan (CHDP) or a point of service (POS) plan.

Depending on your situation, a short-term plan or catastrophic coverage might also be a good option. After you've decided on a type of plan, you'll need to determine a deductible you are comfortable with. What could you afford to pay out-of-pocket each year in a worst-case scenario? Remember, the higher your deductible, the lower your premium; if your monthly cash flow is low, you might have to opt for a higher deductible.

Where to Learn More

Medicare.gov

If you are (or are soon to be) retired, start with Medicare.gov. Explore what original Medicare covers and then look at Supplements and Other Insurance to obtain information on retiree insurance, Medigap, and Medicare Advantage policies. When considering private Medigap (supplemental) or Medicare Advantage (replacement) coverage it’s important to know how both work with original Medicare. That information is also available on the Medicare site.

Healthcare.gov

If you fall into any other category, go to Healthcare.gov to learn about your options under the Affordable Care Act first. This is where you will find out if you qualify for any cost-saving measures and how to apply. Since the ACA has a specific open enrollment period (Nov. 1 – Dec. 15, 2019, for 2020), Healthcare.gov also includes information about private plans outside the ACA. Note that if you buy a private plan outside the ACA Marketplace, whether during open enrollment or not, you will not be eligible for any subsidies available under the ACA.

Here's something important to be aware of: If you are in one of a long list of special situations—including many listed above under "why you might need private health insurance," you may qualify to get ACA insurance outside the open enrollment period. These "Special Enrollment Period" situations include household changes such as getting married or divorced or having/adopting children, losing the person through whom you were covered through divorce or death, moving to a new country or county, losing your health insurance, being in a national catastrophe, or experiencing a disability.

Healthcare.gov provides a Plan Finder to help you locate private non-ACA Marketplace plans that provide ACA qualified coverage. Remember, as noted above, non-ACA Marketplace plans do not qualify for subsidies.

Insurance company websites

You can also visit websites of major health insurance companies in your area and look for available options with the coverage and deductible you prefer. Plans available vary by state, and within your state, the premiums for each plan vary by ZIP code. Also, be aware 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 fork over your medical history.

Price and coverage can vary significantly by company. Often, it's difficult to make an apples-to-apples comparison to determine which company has the best combination of rates and coverage. Your best bet is to limit your options to reputable insurers, then choose the plan they offer that provides the best combination of features you'll use at a price you can afford. If you're choosing a family plan or an employer plan, you'll want to consider not just your own needs, but also the needs of others who will be covered under the plan.

Key Factors for Choosing a Plan

Health insurance plans offer a variety of features. It's unlikely that you'll find a plan that offers everything you'd like, but consider which of the following features you need most. That will help you find the plan that offers the greatest number of them at a price you can manage.

  • Does the plan offer prescription drug coverage? Does it only cover generics? What is the co-payment (co-pay) on generics and on name-brand drugs?
  • What is the office visit co-pay, and does the plan cap the number of office visits it will cover per year?
  • What is the co-pay for professional services, such as x-rays, lab tests, and surgery?
  • What is the co-pay for a hospital stay? For an emergency room visit?
  • Do you want a plan that allows you to add vision and dental coverage at minimal cost?
  • Do you need pregnancy benefits?
  • Do you already have a doctor you like? If so, you might want to find an EPO or PPO plan in which your doctor is part of the insurance company's provider network.
  • Are there lifetime or annual maximum benefits? If so, what are they? The ACA eliminated lifetime and annual maximums for essential medical services, but this does not include, for example, dental and vision coverage.
  • Does the plan offer free or discounted services for preventive care, such as an annual checkup? ACA-qualified plans provide free coverage for most preventative care. Short-term or catastrophic coverage may not. A list of ACA-mandated coverages appears here.
  • Should the plan cover specialty services such as physical therapy, chiropractic, and acupuncture visits?
  • For PPOs, what is the cost for out-of-network services, should you want or need them? Can you afford this?

The Bottom Line

Getting your own health insurance policy isn't as easy or inexpensive as getting signed up with an employer's plan. However, once you figure out what you need and become familiar with the terminology, it's not too intimidating. With the number of options available, you can probably find a plan that meets your needs—and your budget.