Who Pays for What?! Commercial Insurance Explained

Sep 10

The Choose-Your-Own-Adventure of Insurance

It’s open enrollment season. Your inbox is flooded, HR is nudging you with deadlines, and you’re staring at a list of acronyms: HMO, PPO, EPO, HDHP (we’ll talk more about these later). Meanwhile, your $120 medication costs your neighbor $20. Same insurance brand, wildly different outcomes. What gives?!

In the last blog, we discussed Medicare and Medicaid, the federal and state government insurance programs that have a rulebook for guidance. Commercial insurance? One plan offers low premiums but a high deductible, while another has higher premiums and a lower deductible. Sometimes, regardless of which plan you choose, you end up on the page that says, “Sorry, your claim was denied.”

So, let’s break down what “Commercial insurance” is, why it is different from government programs, and what you need to know to navigate this.

What is a premium, and why do I have to pay them?
What does “self-funded” really mean, and why does my employer keep mentioning it?
Why do some services require prior authorization while others don’t?
How do I know if I’m picking the right insurance plan for my health needs?

Before we get too far down the rabbit hole, let’s pause on some basics you’ll see pop up again and again.

Key Terms Recap

If you read my last post on Medicare & Medicaid, you’ve already seen some of these terms. Here’s the super-quick recap (full detail is back in that blog if you want a refresher):

Administration: Who’s running the program? (Government or private company)
Eligibility: Who can sign up, and why (age, income, job, family status)
Coverage: What services are included (and what’s not)
Costs: Premiums, deductibles, copays, coinsurance — who pays what, and when
Plan: The “bundle” of benefits and rules you actually enroll in

Plan Type (e.g., PPO: Preferred Provider Organization). We’ll unpack these in more detail in a future post.

Policy: The fine print: the rules about what’s covered, when, and how often

Commercial at a Glance

We will dig into these terms in further detail.

Commercial or Private Insurance

Private plans, employer coverage, and marketplace

If Medicare and Medicaid programs have policy handbooks and some requirements to jump through, commercial insurance is the “choose your own adventure” version of healthcare insurance.

Private companies, not the government, run them. These companies may be non-profit or for-profit businesses, such as Aetna, Cigna, Blue Cross Blue Shield, or UnitedHealthcare. Employers often sponsor them, but individuals can also purchase coverage directly through the Marketplace (Healthcare.gov or state exchanges).

Even if your card says the same brand (like Blue Cross), the rules can be completely different depending on your employer or plan.

💡 Key difference from Medicare & Medicaid: With commercial plans, the rules are made by the insurer (and sometimes your employer), not the government. That’s why coverage can look drastically different even under the same insurance brand name.

Wait, What the Cuss Does That Actually Mean?

We just threw a bunch of terms at you, such as premiums, deductibles, plans, and policies. They look nice and neat in that table, but do you actually understand them? Let’s strip the “buzz”-wordy stuff out of it.

Premium → This is your monthly subscription fee for health insurance. You pay it regardless of whether you use any healthcare. Think of it like a streaming subscription service like Netflix or Hulu (but not as fun).

Plan → Your plan is basically your insurance bundle of benefits. The same insurance company, but one plan may offer “basic streaming” while the other includes “all the local channels + HBO”.
Policy → This is the fine print. This is where you find out if something’s covered, how often, and under what conditions. Think of it as the “parental controls” in your streaming subscription: “Sorry, you are not allowed to watch PG-13 movies”.
Network → This is your list of “approved providers.” Stay in-network, and your costs are (relatively) predictable. Going out-of-network is like choosing a movie to stream that isn’t included in your subscription, hello $9.99 for an episode.

Okay, now that we’ve got that lingo down, let’s talk about who actually gets commercial insurance and how.

Eligibility

Unlike Medicare, which is based on age or disability, or Medicaid, which is based on income, commercial insurance is primarily tied to your job or buying coverage directly. Unlike Medicare, you don’t just qualify for it because you turned 65.

Some of the common ways that people get insurance are:

Through their employer (group plan)
As a dependent on a spouse or partner's plan
Through your parents' plan (until the age of 26)
Buying insurance directly through the Marketplace or directly from an insurance company

This means your insurance coverage may vary significantly and change depending on various life events, such as

Leaving or changing jobs
Getting married or divorced
Turning 26 (cheaper car insurance at 25, but kicked off your parents' health insurance plan… coincidence? 🤨)

A key point here is that eligibility for commercial insurance isn’t about age or income brackets. It’s about your job, family status, and personal choices, which means your coverage can shift more often than with government programs.

Of course, who gets insurance is one piece of the puzzle. Another is who’s actually running the show (cue the circus music!) 🎪

Administration

Private companies, not the government, run each insurance company. Commercial splits into two more paths.. Remember, this is like a choose-your-own-adventure story, with numerous twists, turns, and choices.

Fully insured
Your employer pays a premium to the insurance company, and the insurer takes on the financial risk.

Translation: If you rack up a million-dollar hospital bill, the insurance company is the one sweating.

Self-funded
Your employer is the insurance company. They pay your claims directly and hire an insurer (like Aetna or Cigna) to handle the paperwork.

Translation: If you rack up a million-dollar hospital bill, it’s your employer’s wallet that takes the hit.

Fully insured is like renting a car; the rental company is responsible if something breaks. Self-funded is like driving your own car; you’re on the hook for the repairs.

Why this matters:

Self-funded = more flexibility to design benefits, but less consistency.
Fully insured = more predictable for small employers, but usually more one-size-fits-all.

Ok, so now we know who is paying the bills, but what about the details on what is covered, or what isn’t?

Coverage

Coverage under Commercial Insurance may make you feel like you’ve chosen the adventure of the Wild West.

There is no overarching playbook or guidelines for these privately run insurance companies. With one exception, federal rules require that all commercial plans cover preventive care (e.g., mammograms, vaccines, wellness exams), but after that, it’s all wide open pretty much.

Here is what this looks like for patients:

Let’s say you needed an MRI for a Back Injury, which can look like three different adventures:

Person A has an employee plan through their employer. The MRI is covered 100% after a $500 deductible has been met.
Person B bought a marketplace plan (direct insurance) with a high deductible. They have to pay $1,500 out of pocket before the plan begins to pay anything.

Person C has a self-funded plan that requires prior authorization, and the first request is denied because physical therapy wasn’t tried first.

Same procedure. Same diagnosis. Three different out-of-pocket costs and an approval process.

For patients, coverage is about the experience you feel in real life, what’s approved, how much you pay, and whether you run into hurdles like prior authorization.

Policy

Behind every coverage decision lies a policy that the insurance company uses to determine whether to say “yes” or “no”. There is no standard, really; policies are the specific rules set by your insurance company and depend on the plan you have.

Commercial insurance companies may use the Medicare policy as a reference point when deciding what to cover, how much to pay, or what documentation to require.

Here is what policies usually outline.

Which services are covered
What kind of documentation or pre-authorization is required
How often you can use a benefit in a given timeframe

Think of the policy like the parental controls on your streaming account. The plan says you’ve got access to the “full library,” but the policy is the pop-up that says: “Sorry, this movie isn’t available at your subscription level”.

The key point here is that policies are the hidden rulebook inside your insurance plan. If you’ve ever gotten a denial that left you scratching your head, it’s usually because the policy said “no”.

Where do you find your policy?

Your employer’s HR portal (Summary Plan Description or SPD)
The insurer’s website (Evidence of Coverage, Coverage Policies, or Clinical Guidelines)
The fine print in your Member Handbook (bring your coffee, don’t be afraid to Google; this is not light reading ☕)

Even when policies say “yes,” it comes with a cost, so let’s take a look at those.

Cost

Commercial insurance is a balancing act between what you pay every month and what you pay when you actually use care.

The table below shows some of the costs that may be incurred with commercial coverage. (Some may also apply to Medicare and Medicaid, as discussed in the last post, but are more common in private or commercial plans.)

Potential Costs for Commercial Insurance

Here is where it gets tricky. Insurance Plans are complex, and there are so many different options.

Some have low premiums and high deductibles, while others have high premiums and cover more at the beginning.

As a patient, it can be challenging to understand and navigate all the options to determine what is best for you and your family. This largely depends on your financial situation and the nature of your medical needs.

We’re going to dive much deeper into deductibles, copays, and coinsurance in the next blog, because they deserve their own spotlight (and some more jokes, of course).

So what does this really mean to you as a patient, or for the teams building healthcare tools?

Why it Matters

For Patients

Know the basics: premium, deductible, copay, coinsurance, and out-of-pocket maximum.
Pay attention to networks; this is where unexpected big bills often occur.
Review your Explanation of Benefits (EOB) from last year to see what you actually spent.
Check your prescriptions against the plan’s covered prescriptions before signing up.
Don’t skip preventive care; most commercial plans cover annual check-ups, vaccines, and screenings at no cost.
Establish a primary care provider; it can save money (and headaches) down the line.
Remember: the “best” plan isn’t universal; it’s the one that fits your health needs and budget.

For Tech & Product Teams

No universal rulebook. Unlike Medicare or Medicaid, commercial insurance is customized by employers, insurers, and even states. Systems must handle this variability and the ability for customizations by the payers.
Policy complexity. Every plan can have different prior authorization rules, coverage limits, and networks. Build tools that make these clear internally and to the member.
Data challenges. Transparency files (MRF/TIC) are massive and messy. Systems that can parse and simplify them create real value.
Life events. Job changes, marriage, divorce, or turning 26 all change eligibility. Workflows need to handle churn gracefully.
Dual logic. Some plans are self-funded, others are fully insured; design products that can support both models.

So how do you actually choose wisely when it’s time to pick a plan?

Tips on Picking a Plan

Although I will cover specific plans in more detail in a future post, since it is Open Enrollment season, I’m including this checklist here to help you when you’re reviewing your open enrollment packet or shopping on the Marketplace. I hope it enables you to navigate a little more easily this year!

Review your costs from last year.

Pull out your EOB’s or billing statements (review the blog on reading your EOB 8/13/25 with tips on how you can export these into a spreadsheet!) You know I’m going to plug a spreadsheet whenever I can😀
Look at the services you used, including doctor visits, labs, and prescriptions.

What conditions are ongoing?
Were some of the costs due to something that was a one-time occurrence or temporary?

This gives you the check: Are you paying for a rich plan that you didn’t use? Would a lower cost plan have been enough?

What is your typical healthcare use?

Rarely see the doctor? A high-deductible plan with a lower monthly premium may save you money on a month-to-month basis.
Ongoing conditions, regular medications, or frequent visits? A plan with a higher premium and lower out-of-pocket costs may be better for you.

Compare Prescription coverage.

Each plan has its own drug list and pricing.
Check your regular medications before selecting a plan.

Review the out-of-pocket maximum.

Once you hit this, the plan pays 100% of covered services for the rest of the year.
For some people with chronic conditions or those undergoing major procedures, this amount may be more significant than a deductible.

Review Premium and Deductible amounts.

Premium = what you pay every month.
Deductible = what you pay before insurance really kicks in.
Think of it like a see-saw — lowering one often raises the other.

💡Pro tip: Your EOBs are your friend! It’s your personal healthcare receipt book. Reviewing them can show you exactly where your money went, and they can help you make more informed decisions!

But What If I Have No Insurance?

That’s a whole other chapter, and yes, we’re going to cover it. Stay tuned for a future blog where we’ll talk about what happens when you don’t have insurance at all, how self-pay works, and what options exist for patients outside of traditional coverage.

One option I want to mention here, which has been gaining popularity, is Direct Primary Care (DPC). Instead of billing insurance, you pay a flat monthly fee (kind of like a gym membership) for unlimited access to your primary care provider.

💊 Many DPC practices also offer discounted prescriptions, since they can buy generics at wholesale prices and pass the savings on to patients. For someone paying cash, that can mean a $50 medication through insurance drops to $5–10 through DPC.

It doesn’t cover everything; you’ll still need a way to handle emergency or hospital costs. However, for preventive and everyday care, it can be a simpler and more affordable option.

Wrapping Up

Commercial insurance may feel like a maze, but once you know the basics, premiums, plans, policies, and networks, you can make more confident choices, avoid surprises, and keep a little more change out of the swear jar. It’s not about finding the “perfect” plan; it’s about finding the one that fits your health needs and your budget.

📚 Missed the earlier posts in this series?

Catch up here: https://coviewconsulting.substack.com/

Why I Started CoView: Navigating Both Sides of Healthcare
Speaking the Same Language in Healthcare
Meet the Players: Patient, Provider, Payer
Cracking the Code
Your Claims Post Visit Adventure
This is Not A Bill? Reading your EOB
Who Pays For What? Part 1: Medicare & Medicaid

What’s Next: Up next: “Copay, Coinsurance, and Deductibles, Oh My!”

We’ll follow the yellow brick road through the three terms that can be a real trip. What they mean, how they really work, and how to think about them when choosing (or using) your plan. The adventure continues: No flying monkeys, but there may or may not be a wizard pulling levers behind the scenes.

Thanks for reading,

Bonnie

💡 If this post helped clarify your coverage chaos, share it with a friend or colleague! And if you have questions or want to see a specific topic covered, drop me a line. I’d love to hear from you.

Note from the Author: This blog is for educational purposes only and reflects my experience. This is not intended as legal, financial, or medical advice, nor is it a preparation for any medical coding exam. Always confirm details with your insurance company, healthcare provider, or HR department. It’s designed to help cross-functional teams in the healthcare industry work together more effectively, and to help you feel more confident advocating for yourself and your loved ones in your personal healthcare matters.

Bonnie Coburn