Commercial health insurance is private coverage purchased through an employer or bought individually, as opposed to government programs like Medicare or Medicaid. It is the most common form of health insurance in the United States, covering nearly two-thirds of Americans. Most people with commercial insurance get it through their job, though millions buy plans on their own through the Health Insurance Marketplace or directly from an insurer.
How Commercial Insurance Differs From Government Programs
The simplest way to think about it: commercial insurance is any plan offered by a private company. You or your employer pay premiums to that company, and in return it covers a defined set of medical services. Medicare (for people 65 and older or with certain disabilities), Medicaid (for lower-income individuals and families), TRICARE (for military members), and the Children’s Health Insurance Program (CHIP) are all government-funded alternatives.
There is some overlap. Medicare Advantage and Medicaid managed care plans are actually run by private insurers, but they receive government funding and follow government rules. These are not considered commercial plans even though a private company administers them. When people in the insurance world say “commercial,” they mean plans funded entirely by private premiums.
Employer-Sponsored vs. Individual Plans
Most commercially insured Americans get coverage through an employer. As of 2023, roughly 127 million people were enrolled in self-funded employer plans alone, with another 48 million in fully insured employer plans across large and small group markets. The individual market, where people buy coverage on their own, covered about 18 million people that same year.
Employer-sponsored plans can start at any point in the year and typically last 12 months. Your employer picks one or more plan options, negotiates rates with an insurer, and usually pays a portion of your monthly premium. Individual marketplace plans follow a calendar year, and if you don’t actively switch during open enrollment, you’re automatically re-enrolled in the same plan. Individual plans purchased through HealthCare.gov may also qualify for income-based subsidies that lower your monthly premium.
Fully Insured vs. Self-Funded Plans
Behind the scenes, employer plans are structured in one of two ways, and the distinction matters more than most people realize. In a fully insured plan, your employer pays a set premium to an insurance company, and that insurer takes on the financial risk of paying your claims. In a self-funded (or self-insured) plan, your employer pays your medical claims directly out of its own funds. The insurance company may still process claims and manage the network, but your employer is the one actually writing the checks.
Self-funded plans have grown significantly. Between 2013 and 2023, enrollment in self-funded group plans rose from about 110 million to nearly 127 million, while fully insured group enrollment dropped by about 14 million over the same period. This shift matters because self-funded plans are regulated by a federal law called ERISA rather than by state insurance rules. That means state-level consumer protections, like mandates requiring coverage of specific treatments, often don’t apply to self-funded plans. If your employer self-funds its plan, your coverage details depend heavily on what your employer chose to include.
Common Plan Types
Commercial plans come in several structures that control how you access care and what you pay. The main differences come down to three things: how large the provider network is, whether you need a referral to see a specialist, and how costs are shared between you and the insurer.
- HMO (Health Maintenance Organization): The least expensive option, with lower monthly premiums and lower deductibles. You choose a primary care doctor who coordinates your care and refers you to specialists. You must stay in-network for coverage to apply.
- PPO (Preferred Provider Organization): The most flexible option. You can see any doctor or specialist, in-network or out-of-network, without a referral. That flexibility comes with higher monthly premiums. Out-of-network care is covered but costs you more.
- POS (Point of Service): A hybrid of HMO and PPO. You may still need a primary care doctor and referrals, but you can go out-of-network at a higher cost. Premiums sit between HMO and PPO levels.
- HDHP (High Deductible Health Plan): Low monthly premiums paired with a high deductible, meaning you pay more upfront before insurance kicks in. These plans can be paired with a Health Savings Account (HSA), which lets you set aside pre-tax money to cover medical expenses.
What Commercial Plans Must Cover
Under the Affordable Care Act, non-grandfathered plans in the individual and small group markets must cover ten categories of essential health benefits:
- Outpatient care (doctor visits, same-day services)
- Emergency services
- Hospitalization
- Maternity and newborn care
- Mental health and substance use disorder treatment
- Prescription drugs
- Rehabilitative and habilitative services and devices
- Lab tests
- Preventive and wellness services, including chronic disease management
- Pediatric services, including dental and vision care for children
Large employer plans are not technically required to cover all ten categories in the same way, but most do because they need to meet other federal standards. Self-funded plans have more flexibility in what they include.
Preventive Services at No Cost
One of the most valuable features of commercial coverage is that many preventive services are covered at zero cost to you when you use an in-network provider. You won’t pay a copay or coinsurance, even if you haven’t met your deductible. These services include blood pressure and cholesterol screening, colorectal cancer screening (ages 45 to 75), diabetes screening for overweight adults 40 to 70, depression screening, HIV screening, lung cancer screening for high-risk adults, hepatitis B and C screening, and obesity screening with counseling. A long list of immunizations is also covered at no cost, including flu shots, HPV vaccines, shingles vaccines, and many others.
Tobacco cessation programs, STI prevention counseling, and even certain preventive medications like statins for adults at high cardiovascular risk are included. These no-cost provisions apply to Marketplace plans and most employer-sponsored plans, though coverage specifics can vary.
How Costs Work
Commercial insurance involves several layers of cost sharing between you and your insurer. Your premium is the monthly amount you pay to keep coverage active, whether or not you use any medical services. Your deductible is the amount you pay out of pocket each year before insurance starts covering most costs. A copay is a flat fee you pay at the time of a visit or prescription, often something like $15 or $30. Coinsurance is a percentage of the bill you owe after meeting your deductible, such as 20% of a hospital stay.
All of these costs (except premiums) count toward your out-of-pocket maximum, which is the most you’ll spend on covered services in a year. For 2026, the federal cap is $10,600 for an individual and $21,200 for a family. Once you hit that ceiling, your insurer pays 100% of covered services for the rest of the plan year. This limit exists specifically to protect people from catastrophic medical bills, though it’s worth noting that premiums and out-of-network costs may not count toward it.
What Commercial Plans Typically Exclude
Even with broad coverage requirements, commercial plans leave out certain services. Adult dental care is one of the most notable gaps. Medical insurance generally does not cover routine dental work, which is why standalone dental plans exist. Routine vision care, including eyeglasses and contact lenses, is usually excluded as well, though medically necessary eye exams are typically covered.
Other common exclusions include hearing aids (unless your state requires coverage), cosmetic surgery, LASIK, weight loss programs and bariatric surgery (coverage varies widely by plan), infertility treatment (required in some states but not others), acupuncture and alternative therapies, private nursing, travel vaccines, and reversal of sterilization procedures. Prescription drugs not listed on your plan’s formulary also won’t be covered, and off-label uses of medications may be denied even if your doctor prescribed them.
Cosmetic procedures have a gray area. Breast reconstruction after mastectomy is required to be covered, and procedures deemed medically necessary (like a rhinoplasty to correct a breathing problem) may be approved. But purely elective cosmetic work is almost always excluded.