What Is Commercial Health Insurance?

Commercial health insurance is health insurance provided and administered by nongovernmental entities. It can cover medical expenses and disability income for the insured.

As of 2020, 1,096 health insurers filed statements with the National Association of Insurance Commissioners (NAIC), a nonprofit that sets standards for the U.S. insurance industry and provides support to insurance regulators.

Key Takeaways

  • Nongovernmental agencies provide and administer what is called commercial health insurance.
  • Two of the most popular types of commercial health insurance plans are the preferred provider organization (PPO) and health maintenance organization (HMO).
  • Most commercial insurance is provided as group-sponsored insurance, offered by an employer.
  • Although not administered by the government, plan offerings, to a large degree, are regulated and overseen by each state.

Understanding Commercial Health Insurance

Commercial health insurance policies are primarily sold by for-profit public and private carriers. Generally, licensed agents and brokers sell plans to the public or group members; however, customers can also purchase directly from the carrier in many instances. These policies vary widely in the amount and types of specific coverage that they provide.

The term "commercial" distinguishes these types of policies from insurance that's provided by a public or government program, such as Medicaid, Medicare, or the State Children's Health Insurance Program (SCHIP). In broad terms, any type of health insurance coverage that isn’t provided or maintained by a government-run program can be considered a type of commercial insurance.

Most commercial health insurance plans are structured as either a preferred provider organization (PPO) or health maintenance organization (HMO). The main difference between these two types of plans is that an HMO requires patients to use providers and facilities within the network if they want insurance to cover the costs, while a PPO lets patients go outside the network (though their out-of-pocket costs might be greater).

Also, HMOs require patients to choose one primary care physician, who serves as the central provider and coordinates the care that other specialists and healthcare practitioners provide. Referrals from the primary are often necessary to see a specialist.

$31 Billion

The net earnings of the U.S. health insurance industry in 2020, according to the National Association of Insurance Commissioners (NAIC). Profit margins increased 3.8% over 2019.

Types of Commercial Health Insurance Plans

Commercial health insurance can be categorized according to its renewal provisions and the type of medical benefits provided. Commercial policies can be sold individually or as part of a group plan and are offered by public or private companies. Some insurance programs are operated as nonprofit entities, often as an affiliated or regional operation of a larger, for-profit enterprise.

Health insurance in the commercial market is commonly obtained through an employer. Because employers typically cover at least a portion of the premiums, this is often a cost-effective way for employees to obtain health coverage. Employers are often able to get attractive rates and terms because they negotiate contracts with insurers and can offer them a large number of policy customers.

Health insurance provided and/or administered by the government is mainly funded through taxes. It is often reserved for particular groups, such as seniors (Medicare), low-income patients (Medicaid), and ex-military personnel (Veterans Health Administration programs). Other examples of government-sponsored insurance include the Indian Health Service (IHS), the State Children’s Health Insurance Program (SCHIP), and TRICARE.

Self-employed people and small business owners can buy health insurance coverage, but it is often financially beneficial for them to try and join via a group plan through a professional organization or local group.

The specific details of a commercial insurance plan can vary widely and are determined by the company that offers the plan. State regulatory and legislative bodies also dictate certain aspects of what the plans are required to offer and how they must operate. These laws also establish mandates for how and when insurers must pay invoices and reimburse providers and patients, as well as the amount of funds the insurer must keep in reserve to have sufficient capital to pay out benefits.

What Is the Difference Between Commercial and Private Health Insurance?

Technically, there is no difference: Commercial health insurance is provided by private issuers—as opposed to government-sponsored health insurance, which is provided by federal agencies. Commercial insurance may be sponsored by an employer or privately purchased by an individual. Most private insurance providers are for-profit companies, but they can be nonprofit organizations too.

Is Obamacare Commercial Insurance?

Obamacare (a nickname for the Affordable Care Act) is a federal law that is often used to refer to individual health insurance obtained through state health exchanges or marketplaces. These plans are offered by private companies, so technically they are commercial insurance—though they do have to follow some federally mandated guidelines.

What Are Examples of Commercial Health Insurance?

Common types of commercial health insurance include HMOs, PPOs, POS (point-of-service) plans, HRAs (health reimbursement accounts), and LTC (long-term care) plans. Medicare Advantage, Medigap, and other Medicare supplemental plans count as commercial health insurance too. The term can also broaden from general health insurance to include dental plans and vision plans.