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Is Medicare a Type of Commercial Insurance?

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Health plan costs have risen substantially, yet salaries have remained nearly flat, up only 15% per year. At the beginning of every year, working Americans are demoted as health care costs unsustainably rise more than salaries.

In 2015, the Kaiser Family Foundation found that medical bills caused one million adults to declare bankruptcy. Its survey found that 26 percent of Americans aged 18 to 64 struggled to pay medical bills, which, according to the U.S. Census, represents 52 million adults.

However, most people eligible for Medicare hesitate to enroll because no one has told them the benefits they may qualify for. In this article, we’ll compare Medicare to other kinds of commercial insurance and answer the question, “Is Medicare commercial insurance?”

Medicare is a Government Health Insurance Program

Medicare is a federal government health insurance program. A combination of payroll taxes and participant premiums, deductibles, and copays fund Medicare. Employees and employers each pay a 1.45% tax on all income, making the total Medicare tax 2.9%. If individuals earn over $200,000, they pay an additional 0.9%. This tax is levied only on employees, not employers.

To be eligible for Medicare coverage, you must be 65 and older or someone with certain illnesses or disabilities. There are multiple ways to receive coverage from Medicare, but there are four common types (or parts).

Part A covers hospital care and related healthcare costs. Meanwhile, Part B covers doctor visits and outpatient medical care. Part C covers the same benefits as Parts A and B, but only private companies offer it. Lastly, Part D covers prescription drugs.

Some people also worry that Medicare is another kind of commercial plan. Rest assured that this isn’t true - it’s issued by the government. However, certain types of coverage may count as commercial health insurance plans.

Private companies manage commercial health insurance plans. So, Medigap Plans and Part C Medicare Advantage plans are considered commercial health insurance plans since private companies manage them.

Common Types of Commercial Health Insurance

Health Insurance

Most people apply for commercial health insurance plans through an employer. Since employers usually cover some portion of premiums and health care costs, most people get insurance this way.

But keep in mind that not all plants are made equal. Commercial insurance plans don't offer comprehensive coverage like a standard health insurance plan. Plus, they also have higher out-of-pocket costs when you need care. Some have a network of providers, have high maximum pocket costs, and may require a primary care physician for referrals.

It can be confusing and overwhelming to break these things down. To simplify things, there are four common types. Your plan will either be a Health Maintenance Organization (HMO), Preferred Provider Organization (PPO), Exclusive Provider Organization (EPO), or a Medicare Advantage Plan.

Below, we’ll look at the differences and similarities between each one.

Health Maintenance Organization (HMO)

A Health Maintenance Organization (HMO) is one of the most common types of commercial health insurance plans. Remember that HMOs require policyholders to use a network of providers and facilities to receive coverage for their healthcare costs.

Preferred Provider Organizations (PPO)

Like HMOs, PPOs are one of the most common plans used by private companies. While PPOs always have a network of providers, these plans offer patients more freedom and flexibility.

If your doctor is within the network, your co-pay will be lower while the insurer pays more for the services. However, your co-pay will be higher if your doctor is not within the insurer’s network.

Also, you do not need a referral from a primary care physician to see a specialist. PPOs charge monthly premiums, deductibles, and co-pays like HMOs, but the amount can vary depending on your policy.

Exclusive Provider Organizations (EPO)

An EPO is similar to an HMO in that you’re required to see a network of providers. However, policyholders do not need a referral from a primary care physician to see a specialist (like a PPO).

This means that care from an out-of-network doctor or facility will not be covered. This raises your pocket costs if you have a preferred provider that your insurance doesn’t cover.

Keep in mind that EPOs are less expensive than HMOs and PPOs. But, they are best suited for younger and healthier individuals who don’t need much medical attention.

Medicare Advantage Plans

Medicare Advantage combines Original Medicare Parts A and B. Usually, it also includes Part D prescription drug coverage in addition to some extras like vision, dental, and hearing coverage.

Private insurers offer these plans and make contracts with Medicare to provide Parts A and B benefits.

Note that Medicare Advantage plans can be a Health Maintenance Organization, Preferred Provider Organization, Private Fee For Service, or Special Needs Plan.

Why Consider Enrolling in Medicare Advantage or Medigap Policy


Some providers argue that Medicare payment rates are too low to cover the reasonable cost of care. These shortfalls lead them to raise prices for private payers. However, much of the literature suggests that providers negotiate prices with private insurers irrespective of Medicare rates. Moreover, providers with substantial market power are best positioned to command high prices. This allows them to evade financial pressure and become more efficient.

The reality is that Medicare Advantage and Medigap can benefit policyholders depending on their needs and situation. 

Benefits of Medicare Advantage Plan

There are multiple benefits to having a Medicare Advantage Plan. Not only does it offer coverage for services like vision and dental, but it also has maximum out-of-pocket costs. These costs can include deductibles and copays but not monthly premiums.

Medigap Policy Coverage

Private companies sell Medigap, a kind of Medicare supplemental insurance that covers Original Medicare costs like deductibles, copayments, and coinsurance.

In certain cases, Medigap may also cover emergency medical fees when you’re traveling internationally. However, remember that Medicare will only pay after everyone (including the policyholder) has paid their bill shares.

Remember to Talk to an Agent When Comparing Health Insurance Plans

To have commercial health insurance, you must purchase a plan from your employer or on your own. If you have multiple options, take the time to compare the similarities and differences of each plan. This way, you can pick the best plan for you and your family.

While comparing plans, keep a few things in mind:

  1. What type of plan is it (HMO, PPO, EPO, etc.)?

  2. What are the in-network and out-of-network policies?

  3. Do you need a referral from a primary care physician to see a specialist?

  4. How much is the monthly premium?

  5. What are the policies on out-of-pocket expenses?

  6. What services are covered, and which aren’t?

Once you find a plan that works for you, you can complete the paperwork and sign up. It may also help to speak with a licensed agent about your insurance options if things become overwhelming.

Frequently Asked Questions

What are the benefits of commercial health insurance?

Usually, the benefits of commercial insurance are prices. This is because employers work to negotiate relatively good premiums in exchange for policyholders and also help to pay costs.

What is the major difference between private commercial insurers and HMOs?

The biggest difference between the two is that HMOs require you to receive care from in-network providers to receive any coverage. Meanwhile, PPOs will cover out-of-network care with a high copayment.

What is a commercial drug plan?

Commercial drug plans mean that your insurer covers (partially or in full) the prescriptions you fill at the pharmacy for treatment.

Most insurance plans already include some drug plans. However, it may be a good idea to look into the level of coverage if you or your spouse require frequent drug treatments.

What is the most common type of private insurance plan in the US?

HMOs and PPOs are two kinds of private insurance plans that are the most common in the United States.

Which form of private insurance is usually the least expensive?

When comparing private insurance plans, EPOs are the least expensive plan you can have.

What Works Best for You?

While most employers offer commercial plans, don’t pass up your Medicare benefits. While Medicare is government-managed, specific options like Medigap and Medicare Advantage are still commercial insurance.

If costs are a major concern, you can receive a free quote and speak with a licensed agent about your options. That way, you know you’re picking the best plan for you and your family.

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