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 2021, 1,160 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.

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.

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.

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.

The Bottom Line

Commercial health insurance is health insurance provided by private issuers—as opposed to government-sponsored health insurance, which is provided by federal agencies. Two of the most popular types of commercial health insurance plans are the preferred provider organization (PPO) and health maintenance organization (HMO).

Although not administered by the government, plan offerings, to a large degree, are regulated and overseen by each state. Most commercial insurance is provided as group-sponsored insurance, offered by an employer.