What is Private Health Coverage?

Private health coverage is a mechanism for people to (1) protect themselves
from the potentially extreme financial costs of medical care if they become severely ill,
and (2) ensure that they have access to health care when they need it.
Health care can be quite costly, and only the richest among us can afford to pay
the costs of treating a serious illness should it arise. Private health coverage products
pool the risk of high health care costs across a large number of people, permitting them
(or employers on their behalf) to pay a premium based on the average cost of medical
care for the group of people. This risk-spreading function helps make the cost of health
care reasonably affordable for most people.
In addition, having an “insurance card” enables patients to receive care in a
timely way by providing evidence to health care providers that the patient can afford
treatment. Providers generally know that when they treat people with health
coverage, they are likely to be paid for their services within a reasonable time.
Health coverage is provided by a wide array of public and private sources. Public
sources include Medicare, Medicaid, federal and state employee health plans, the
military, and the Veterans Administration.
Private health coverage is provided
primarily through benefit plans sponsored by
employers – about 162 million nonelderly people
are insured through employer-sponsored health
insurance.i People without access to employersponsored
insurance may obtain health insurance
on their own, usually through the individual health
insurance market, although in some instances
health insurance may be available to individuals
through professional associations or similar arrangements. About 12 million nonelderly
people buy health insurance directly at any given time.ii