Private Insurance | All You Need to Know About Private Insurance

Private Insurance


Insurance protection provided by non-governmental sources such as private insurance companies. This can also refer to a policy which is purchased by an individual directly from the insurer and that is not part of a group or employer-backed policy.

Private insurance plans include all forms of health insurance that are not funded by the government.

Medical savings accounts (MSAs)

Medical savings accounts are not health insurance plans in the strict sense but offer a partial alternative to expensive individual private insurance plans. MSAs are similar to Individual Retirement Accounts (IRAs) and have been considered a significant tax break for self-employed individuals. They were created as a four-year pilot project by the Health Insurance Portability and Accountability Act (HIPAA) of 1996. Effective December 31, 2000, the federal government issued an extension on these accounts for two years. The future of MSAs is not clear; however, the government will not revoke these accounts once they have been opened.

An MSA must be combined with a qualified high-deductible private health plan. Without an MSA, a self-employed individual can deduct qualified medical expenses only under the itemized deductions of a 1040 tax form, and the expenses must exceed 7.5% of the adjusted gross income.

Some workers do not have health insurance because they cannot afford it. In the 1950s, employer-based health insurance served most American families reasonably well because many workers were employed by large firms and remained with them for life. The trend over the past two decades is employment by small firms that do not offer health insurance as a benefit, and a tendency to change employers every few years. Most uninsured workers are self-employed, work only part-time, or hold low-wage jobs that do not give them access to lower-cost employer-sponsored group plans. Workers in these three categories do not qualify for coverage by government programs for low-income people.

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The other major category of uninsured people includes those who cannot purchase private insurance at affordable rates because they are likely to need expensive medical services. Those who have a high risk of developing cancer or are HIV-positive may not be able to obtain coverage from any insurance company. As early as the 1980s, some insurance companies began introducing clauses that excluded or restricted benefits for persons with pre-existing conditions. These clauses denied private insurance to anyone already diagnosed with a serious medical condition. One of the goals of the Health Insurance Portability and Accountability Act (HIPPA) of 1996 was to help workers who could not change jobs because they had family members with serious health problems. In the past, they would have been denied health insurance by the preexisting condition clauses in the new employer’s plan. HIPAA requires employer-sponsored insurance plans to accept transfers from other plans without imposing preexisting condition clauses.

An individual private health insurance plan can be expensive and restrictive. It may, however, be the only choice for a consumer who is not employed; self-employed; or is a new hire at a company and must wait several months or more before the company’s coverage takes effect.

Tax credit proposals

One approach to the rising costs of private health insurance that is gaining bipartisan political support is to offer tax credits that would allow more Americans to purchase health insurance. The present federal tax code favors workers who already have employer-sponsored health insurance. Supporters of the tax credit approach maintain that it would give workers a wider choice of health plans, create greater portability of health insurance, and encourage groups other than employment-based populations (e.g., church groups, unions, fraternal organizations ) to sponsor insurance plans for their members.

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These plans are intended to protect their beneficiaries from the high costs that may be incurred for health care. Most private insurance plans in the United States are employment-based.

Of the nearly 239 million Americans who are covered by private health insurance, approximately nine in 10 (213 million, or 89%) are enrolled in employment-based plans.

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