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Public vs Private Health Insurance

Private vs. Public Health Insurance: Key Differences and Costs

Key Takeaways

1. Public health insurance is insurance regulated by law and administered by the government or a non-profit entity providing health coverage to eligible people. 

2. Private health insurance provides health coverage and is administered by a private body, such as an insurance company. 

3. Private health insurance is seen as an attractive part of a supplemental employee benefits package. 

Health insurance has consistently been shown to be employers’ and employees’ most important employment benefit. In a recent survey, workers ranked it even above retirement savings. Eighty-eight percent of employers rank it as “very important” or “extremely important.” 

Internationally, employee healthcare is governed by two different types of insurance: private and public. This article examines the key differences between the two and how they impact employer and employee costs. 

What is Public Health Insurance?

Public health insurance refers to government-mandated insurance programs designed to provide health coverage to eligible individuals and administered by a non-profit or governmental body. Taxes typically fund these programs but they may also be financed by specific levies (such as the United Kingdom’s National Insurance levy).

Most countries have some form of public health insurance. This can come in different forms: 

  • Single-Payer: The government funds and provides health care for all residents in a single-payer system. Examples include the National Health Service (NHS) in the United Kingdom and the Canadian Medicare system.

  • Social Health Insurance: This model involves mandatory insurance programs and is typically funded by contributions from employers and employees, with the government often subsidizing or directly contributing as well. Germany’s statutory health insurance is an example.

  • Targeted Programs. In the United States, Medicaid is a public health insurance program for low-income individuals and families. It is jointly funded by the federal and state governments and administered by the states. The US also has Medicare,  a federal health insurance program primarily for people aged 65 and older but also covers younger individuals with certain disabilities and diseases.

Note that some countries have universal healthcare coverage and do not rely on any form of insurance. Instead, a certain standard of healthcare is provided to all, funded by general taxation. Japan and New Zealand have universal healthcare of this form. 

What is Private Health Insurance?

Private entities typically provide private health insurance. It offers various plans with differing coverage levels, flexibility, and cost. Individuals usually purchase these plans directly or obtain them through their employer. Private insurance aims to provide a higher standard of care, with quicker access to specialists and more choices regarding healthcare providers. Private plans can vary widely, offering different levels of coverage, deductible amounts, and choice of healthcare providers.

Private health insurance is especially common for U.S. employees. Some examples of private health insurance are: 

  • Employer-Sponsored Insurance. Many companies offer health insurance as part of their employee benefits package. The employer often pays a portion of the premium, and the employee pays the remainder through payroll deductions.

  • Direct Purchase. Individuals can buy health insurance directly from an insurance company or a broker. This is often the case for self-employed individuals, those whose employers do not offer coverage, or those who are unemployed.

  • Health Insurance Marketplaces/Exchanges. Established by the Affordable Care Act (ACA) in the United States, these online marketplaces allow consumers to compare and purchase insurance plans. Subsidies may be available based on income levels to help lower the cost of premiums.

  • Private Medicare Plans (Medicare Advantage). In the U.S., Medicare beneficiaries can enroll in Medicare Advantage plans, which private insurance companies offer and provide Medicare benefits.

  • Private Medigap Policies. These are supplemental insurance policies sold by private companies to cover gaps in Original Medicare coverage, such as copayments, coinsurance, and deductibles.

  • Dental and Vision Insurance. These are often sold as separate policies from general health insurance, providing dental and vision care coverage, which are not typically covered by standard health insurance policies.

Key Differences Between Public and Private Health Insurance

Public and private health insurance differ primarily in their funding sources, coverage scope, choice of providers, and the costs to the insured.

1. Funding Sources

Public health insurance is typically funded through taxpayer money and managed by government entities. Medicare and Medicaid in the United States are examples of publicly funded insurance programs that draw from state and federal budgets.

Private health insurance, on the other hand, is funded through premiums paid by the insured parties and their employers. Private insurance companies manage these funds.

2. Scope of Coverage

The scope of coverage under public health insurance is often determined by legislation and may cover essential health benefits with limited opportunity for customization. For instance, Medicare has defined “parts” that stipulate what services are covered.

Conversely, private health insurance plans offer more flexibility and typically allow the insured to tailor the coverage to their needs, often offering additional benefits beyond public insurance, such as dental and vision care.

3. Choice of Providers

With public health insurance, the insured’s choice of providers may be restricted due to government contracts with specific hospitals and doctors. For example, Medicaid recipients might have a limited network of providers who accept Medicaid insurance.

In contrast, private health insurance often provides a broader network of providers, and higher-tier plans may offer the option to see providers outside the network at an additional cost.

4. Cost to Insured

The cost to those insured under public health plans is generally lower than private insurance and can often be based on income, making it more accessible for low-income individuals. Public programs may have minimal to no premiums and reduced out-of-pocket costs for eligible individuals.

Private health insurance costs vary widely depending on plan types, coverage levels, deductibles, and copayments. Premiums tend to be higher, and out-of-pocket expenses can be significant, especially for plans with broader provider networks and more extensive coverage.

Video: Comparing Public and Private Healthcare Systems Internationally

How to Choose the Right Health Insurance for You

Choosing the right health insurance requires careful evaluation of personal healthcare needs, a thorough comparison of available plans, and an honest assessment of what can be afforded in budget.

Assessing Your Healthcare Needs

Individuals should consider their medical history, current health status, and likelihood of requiring certain services. This may include:

  • Frequency of Doctor Visits: Routine check-ups, specialist consultations, or chronic ailment management.
  • Prescription Medication: Regular medications and foreseeable prescriptions should be accounted for.
  • Special Treatments: Physical therapy, mental health services, or other specialized treatments.

Comparing Plans and Benefits

Once healthcare needs are determined, comparing the specifics of each plan is crucial. Key components to compare include:

  • Coverage Details: Outlining what is and isn’t covered.
  • Network of Providers: Ensuring preferred doctors and hospitals are in-network.
  • Extra Benefits: Considering wellness programs, telehealth services, etc.

Considering Your Budget

Evaluating the financial aspect involves looking at the following:

  • Premiums: Monthly cost of the insurance policy.
  • Deductibles: Out-of-pocket expenses before insurance starts to pay.
  • Copayments and Coinsurance: Costs shared between the insurer and the insured for services.

Financial considerations are pivotal and may impact the choice between private and public health insurance options. Individuals must weigh the cost-benefit ratio of each plan relative to their budget.

Should Employers Offer Supplemental Health Insurance?

Where employers have the choice to offer private health insurance to employees as a supplement to coverage from the public system, should they do so? Potential benefits include:

  • Attract and Retain Employees: In a competitive job market, a comprehensive benefits package that includes supplemental health insurance can be a significant draw for potential employees. It signals that the employer cares about the well-being of its staff, 

  • Fill Coverage Gaps: Supplemental health insurance can cover expenses not covered by standard health insurance plans, such as deductibles, co-pays, and other out-of-pocket costs. This can be especially important for employees facing chronic conditions, serious illnesses, or those needing dental or vision care that might not be fully covered under a basic health plan.

  • Cost-Effective for Employees: Supplemental insurance plans are often more cost-effective for employees than seeking out these coverages on their own. Group rates provided through an employer can make these plans more affordable.

  • Flexible Options: Employers can often choose from a range of supplemental insurance products to offer, such as critical illness, accident, hospital indemnity, and disability insurance. This allows employers to tailor their benefits package to the specific needs of their workforce.

  • Tax Benefits: There can be tax advantages for both employers and employees when offering and participating in supplemental health insurance plans, depending on the structure of the plan and local laws.

  • Supports Employee Wellness: By covering preventive services and providing financial support during health crises, supplemental health insurance can contribute to a healthier workforce. This can reduce absenteeism and increase productivity.

Of course, employers will have to weigh up the cost of offering this to employees with those benefits. 

Simplify Health Insurance for your Global Team

To ensure that you recruit and retain the top international talent, it is vital that you optimize your benefits package, in whichever country you hire. 

When you hire through an international Employer of Record, like Horizons, you ensure that you are teamed up with a global leader in employee benefits. We take care of health insurance and employee benefits, alongside payroll and HR. This leaves you to focus on core business, in whichever country you hire. 

Frequently Asked Questions (FAQ)

It depends on the country in which the employee is hired. In some countries with universal healthcare systems (such as New Zealand, Japan or the Philippines), it is not mandatory. 

A public healthcare system can be funded and administered without insurance, though in many countries (such as Germany and the UK), public healthcare is funded through a form of national or statutory insurance. 

Private vs. Public Health Insurance: Key Differences and Costs

Public vs Private Health Insurance