What individual health insurance is and who buys it

Individual health insurance is a policy you buy for yourself, rather than receiving it through an employer or government program. You pay a monthly premium directly to an insurance company, and in return the insurer covers some or all of your medical costs — doctor visits, hospital stays, prescription drugs, and preventive care — depending on what your plan includes.

You buy individual insurance when you are self-employed, between jobs, retired before Medicare age, or straightforward prefer to choose your own plan rather than use what an employer offers. The insurance company cannot deny you coverage or charge you more based on pre-existing health conditions, though your age, location, tobacco use, and the plan tier you choose will affect your monthly cost.

Individual plans come from private insurers like UnitedHealthcare, Aetna, Cigna, and Blue Cross Blue Shield, or through the Health Insurance Marketplace — a government-run website where you can compare plans side by side and see whether you may have access to for a tax credit that lowers your monthly premium. Some people buy directly from an insurer's website instead.

Key Takeaways

  • Individual health insurance is a monthly contract between you and an insurance company that covers your medical costs, and you can buy it any time of year through the Marketplace or directly from an insurer.
  • The Health Insurance Marketplace opens for enrollment each November and closes in December, but you can buy outside that window if you experience a may have access to life event like losing employer coverage or moving states.
  • Your monthly premium depends on your age, location, tobacco use, and which plan tier you choose, and you may receive a tax credit that reduces your premium if your household income falls within certain ranges.
  • Every plan covers the same ten essential health benefits — preventive care, emergency services, hospitalization, and others — but plans differ in how much you pay out of pocket through deductibles, copays, and coinsurance.
  • Before you buy, compare plans on the Marketplace using the plan comparison tool, and check whether your doctors and preferred pharmacy are in-network to avoid surprise costs.

When you can buy individual insurance and how enrollment works

The main enrollment period for individual health insurance runs from November 1 through December 15 each year. During this window, you can buy any plan offered in your state without restrictions. If you miss this important date, you can still buy insurance, but only if you have a may have access to life event — a change in your circumstances that opens a special enrollment period lasting 60 days.

may have access to life events include losing employer-sponsored coverage, getting married or divorced, having a baby, moving to a different state, or experiencing a significant drop in household income. When one of these occurs, you can enroll in a plan outside the annual window. You will need to provide documentation — a termination letter from your employer, a marriage certificate, a birth certificate, or a notice of address change — to prove the event happened.

To buy insurance, go to HealthCare.gov if you live in most states, or your state's own Marketplace website if your state runs its own system (California, Connecticut, New York, and a few others have their own sites). You will create an account, enter your household income and family size, and see which plans are available in your area along with their monthly premiums and any tax credits you may receive.

How premiums, deductibles, and out-of-pocket costs work together

Your premium is the monthly amount you pay to keep the insurance active, whether you use it or not. Your deductible is the amount you must pay out of your own pocket for medical care before the insurance company begins to pay its share. A plan with a lower monthly premium usually has a higher deductible, and vice versa.

Once you meet your deductible, you typically pay a copay (a fixed dollar amount per visit, like $25 for a doctor's appointment) or coinsurance (a percentage of the cost, like 20 percent). The insurance company pays the rest. You also have an out-of-pocket maximum — the most you will pay in deductibles, copays, and coinsurance in a year. Once you reach it, the insurance company pays 100 percent of covered costs for the rest of that year.

For example, if your plan has a $1,500 deductible, a $25 copay for doctor visits, and a $6,000 out-of-pocket maximum, you pay the full cost of care until you have spent $1,500. Then you pay $25 per doctor visit and the insurance company covers the rest. If your total out-of-pocket spending reaches $6,000 in a year, the insurance company pays everything else until the year ends on December 31.

The four plan tiers and what they cover

Individual health insurance plans are sorted into four tiers based on how costs are split between you and the insurance company: Bronze, Silver, Gold, and Platinum. Bronze plans have the lowest monthly premium but the highest deductibles and out-of-pocket costs. Platinum plans have the highest monthly premium but the lowest deductibles and out-of-pocket costs. Silver and Gold fall in between.

Every plan in every tier covers the same ten essential health benefits: preventive care (like annual checkups and vaccines), emergency services, hospitalization, maternity and newborn care, mental health and substance use treatment, prescription drugs, rehabilitation and habilitation services, laboratory services, imaging, and pediatric dental and vision care. The difference is how much you pay when you use them.

Bronze plans typically cover about 60 percent of your health care costs, while you pay 40 percent. Silver covers about 70 percent. Gold covers about 80 percent. Platinum covers about 90 percent. These percentages are averages across all covered services — your actual split depends on the specific service and whether you have met your deductible.

If you receive a tax credit, it usually reduces the premium of a Silver plan most significantly, so Silver is often the best value for people with moderate incomes. Bronze plans make sense if you are young and healthy and want to minimize monthly costs. Gold and Platinum are better if you expect to use medical care frequently or have a chronic condition.

Tax credits and cost-sharing reductions that lower your costs

When you enroll through the Health Insurance Marketplace, the system checks your household income against the federal poverty line. If your income falls between 100 and 400 percent of the federal poverty line, you may receive a premium tax credit — money that reduces your monthly premium. The lower your income within that range, the larger the credit.

If you choose a Silver plan and your income is below 250 percent of the federal poverty line, you may also receive cost-sharing reductions, which lower your deductible, copays, and coinsurance. These reductions only work with Silver plans — if you choose Bronze, Gold, or Platinum, you do not receive them even if you are otherwise may be able to access.

You must report your expected household income for the year when you enroll. If your actual income turns out to be different, you may owe money back when you file your tax return, or you may receive a refund. To avoid surprises, update your income information on the Marketplace if your circumstances change during the year — a job loss, a raise, or a change in household size.

How to choose a plan and check if your doctors are covered

On the Health Insurance Marketplace, you can filter plans by monthly premium, deductible, or out-of-pocket maximum to narrow your choices. But the most important step is checking whether your current doctors and your preferred pharmacy are in-network — meaning the insurance company has a contract with them and you will pay the lower in-network rate.

Each plan's detail page includes a link to the insurer's provider directory or a search tool where you can enter your doctor's name and see whether they accept that plan. If your doctor is out-of-network, you will pay much more — sometimes the full cost of the visit — so this step can save you hundreds of dollars a year. Do the same for any pharmacy you use regularly, especially if you take prescription medications.

You should also check whether any medications you take are covered by the plan's formulary — the list of drugs the insurer will pay for. Some plans cover a drug with a low copay, while others require a higher copay or do not cover it at all. If a medication you need is not covered, you can ask the insurer for an exception, but there is no may provide they will grant one.

What happens after you enroll and when coverage begins

Once you enroll in a plan, the insurance company will send you a confirmation email and a physical insurance card in the mail within 7 to 10 days. Your coverage begins on the first day of the month after you enroll, unless you enroll between the 15th and the last day of a month, in which case coverage begins the first day of the following month.

If you enroll during the annual open enrollment period (November 1 to December 15), your coverage will begin on January 1. If you enroll outside that window due to a may have access to life event, your coverage start date depends on when you enroll — the Marketplace will tell you the exact date when you finish enrolling.

You must pay your first premium by the important date shown on your bill, usually the 15th of the month before coverage begins. If you do not pay, your coverage will not start. After that, you pay your premium each month to keep the plan active. If you miss a payment, the insurer will typically give you a grace period of 30 days before canceling your coverage.

Common mistakes to avoid when buying individual insurance

One of the biggest mistakes is choosing a plan based only on the monthly premium without comparing deductibles and out-of-pocket maximums. A plan with a $100 lower monthly premium might have a $2,000 higher deductible, which means you will pay more overall if you use medical care.

Another mistake is not checking whether your doctors are in-network before you enroll. You might save money on the premium only to find out that your preferred doctor does not accept the plan, forcing you to either switch doctors or pay out-of-network rates.

A third mistake is not updating your income information on the Marketplace if your circumstances change during the year. If you receive a tax credit based on an estimated income that turns out to be too high, you may owe money back when you file your taxes. Updating your information can prevent this surprise.

Finally, some people forget to renew their coverage each year. Even if you were enrolled the previous year, you must actively choose a plan during the annual enrollment period or your coverage will end on December 31. The Marketplace will send you reminders, but it is your responsibility to enroll.

Frequently Asked Questions

Can I buy individual health insurance outside the annual enrollment period?

Yes, but only if you have a may have access to life event like losing employer coverage, getting married, having a baby, moving states, or experiencing a significant income drop. When one of these occurs, you have 60 days to enroll. Outside those circumstances, you must wait for the annual enrollment period in November and December.

What is the difference between a deductible and an out-of-pocket maximum?

Your deductible is the amount you pay before the insurance company starts to help. Your out-of-pocket maximum is the most you will pay in total (deductibles, copays, and coinsurance combined) in a year. Once you reach your out-of-pocket maximum, the insurance company pays 100 percent of covered costs for the rest of that year.

Do I have to choose a plan on the Health Insurance Marketplace, or can I buy directly from an insurance company?

You can do either. The Marketplace lets you compare plans side by side and see whether you may have access to for a tax credit. Buying directly from an insurer's website bypasses the Marketplace but means you will not see tax credits or be able to compare other companies' plans easily. Most people save money by using the Marketplace.

What happens if my income changes during the year?

You should update your income information on the Marketplace as soon as possible. If your income drops, you may become may be able to access for a larger tax credit. If your income rises, your credit may shrink or disappear. Updating prevents you from owing money back when you file your taxes.

Can an insurance company deny me coverage because of a pre-existing condition?

No. Federal law prohibits insurance companies from denying you coverage or charging you more based on pre-existing health conditions. However, your age, location, tobacco use, and the plan tier you choose will still affect your monthly premium.