Commercial health insurance is health coverage provided by private companies rather than by a government program. It includes the group plans employers offer their employees and the individual plans people buy on their own. Medicare, Medicaid and military coverage are the government programs it is usually contrasted with.
Key takeaways
- Commercial means private. The coverage is sold or administered by a private company, not run by a government program.
- It is the most common kind of coverage. Employer group plans are the largest single source of it.
- It comes in two funding types. Fully insured plans are regulated by the state; self-funded employer plans are governed mainly by federal ERISA rules.
- The term matters to providers. Doctors and hospitals are generally paid more by commercial plans than by Medicare or Medicaid, which is why they ask what kind of coverage you have.
Commercial versus government coverage
| Commercial (private) | Government (public) |
|---|---|
| Employer group health plans | Medicare |
| Individual and family plans, on or off the marketplace | Medicaid, including Michigan’s Healthy Michigan Plan |
| Student health insurance | TRICARE and VA coverage for military members and veterans |
| Plans bought through a private exchange | Children’s Health Insurance Program (CHIP) |
Some coverage sits in between. Medicare Advantage and Medicaid managed care plans are run by private insurance companies but paid for by a government program, and providers and insurers usually classify them with the government program they replace, not as commercial coverage.
The two main kinds of commercial coverage
Employer group coverage
An employer buys a plan, or sets one up, for its employees and their families, and usually pays part of the cost. Group coverage is the most common kind of commercial insurance. Our guide to health insurance for employees explains how a Michigan employer sets one up.
Individual coverage
A person or family buys a plan directly from an insurer or through the Health Insurance Marketplace, where income-based premium tax credits can lower the cost. Individual coverage is also commercial insurance, because a private company provides it.
Fully insured and self-funded commercial plans
Employer plans are funded in two different ways. In a fully insured plan, the employer pays premium to an insurance company, which takes on the claims risk. These plans are regulated by the state insurance department as well as by federal law. In a self-funded plan, the employer pays claims itself, usually through an administrator, and buys stop-loss insurance against large claims. Self-funded plans are governed mainly by the federal ERISA law, which is why state insurance mandates generally do not apply to them. See What Is an ASO Health Plan? and our pages on self-funded and level-funded plans.
Common commercial plan types
- HMO: a network plan that usually requires a primary care physician and referrals. See What Is an HMO?
- PPO: a larger network and coverage for out-of-network care, at a higher premium
- EPO: a network plan with no out-of-network coverage except emergencies, usually without referrals
- HDHP with an HSA: a high-deductible plan that lets members save pre-tax in a health savings account. See What Is an HSA?
Why the term comes up
- At the doctor’s office or hospital, registration staff ask whether you have commercial insurance, Medicare or Medicaid because each is billed differently.
- At 65, an employee who keeps working may have both commercial employer coverage and Medicare, and the rules decide which one pays first.
- In pricing, “commercial rates” are what private plans pay providers. They are generally higher than Medicare rates, which is one reason employer premiums rise faster than the cost of care alone suggests.
Commercial health insurance in Michigan
Michigan employers can choose among several commercial carriers, each with its own networks and plan designs, and the right one depends on where employees live and which doctors they use. Our overview of Michigan health insurance carriers compares the main options.
More plain-English benefits explainers
- What Is an HMO?: how HMO plans work and who they fit
- Health Insurance for Employees: how Michigan employers set up a group plan
- What Is an ASO Health Plan?: how administrative services only, self-funded plans work
- What Is Stop-Loss Insurance?: specific and aggregate coverage for self-funded plans
- Medical Loss Ratio Rebates: what employers must do with the check
- What Does EE Mean?: EE, ES, EC and family coverage tiers
Frequently asked questions
What is commercial health insurance in simple terms?
It is health coverage from a private company, such as an employer group plan or an individual plan, as opposed to a government program like Medicare or Medicaid.
Is employer-sponsored insurance commercial insurance?
Yes. Employer group health plans, whether fully insured or self-funded, are the most common kind of commercial health insurance.
Is Medicare commercial insurance?
No. Medicare is a federal government program. Medicare Advantage plans are run by private insurers but are paid for by Medicare and are usually classified with Medicare rather than as commercial coverage.
Is Medicaid commercial insurance?
No. Medicaid is a joint federal and state program. In Michigan, private health plans manage much of Medicaid coverage, but it is still a government program.
Is marketplace coverage commercial insurance?
Yes. Plans sold on the Health Insurance Marketplace are private individual plans, even when a premium tax credit lowers the cost.
Choosing commercial coverage for your team?
CFH Insurance Consultants is an independent employee benefits firm. We are licensed insurance brokers, and for proper coverage of an account we work in teams of five. We will compare the commercial carriers and plan types that fit where your employees live and work, and show you the cost of each side by side before you decide. Start here, call 248.370.8853, or book a 30-minute call.
This article is general information, not legal advice. Plan availability, networks and rules vary by carrier and state.
