According to the Centers for Medicare and Medicaid Services, “Health care coverage is often grouped into two general categories: private and public. The majority of people in the U.S. have private insurance, which they receive through their employer (which may include non-government employers or government employers at the federal, state or local level), buy directly from an insurance company, or buy through a Health Insurance Marketplace. Some people have public health care coverage through government programs such as Medicare, Medicaid, or the Veterans Health Administration.”
Learn more: How does HIPAA define a health plan?
Health insurance: Private sector approach
Health insurance refers to private health insurance plans offered by companies like Aetna, Blue Cross Blue Shield, UnitedHealthcare, and others. These are risk-based models where:
- Individuals or employers pay premiums to insurance companies
- Insurance companies create networks of providers with negotiated rates
- Patients sometimes face deductibles, copayments, and coinsurance
- Coverage decisions are made based on medical necessity as defined by the insurer
Private insurers operate as "covered entities" under HIPAA, meaning they must comply with strict regulations about how they handle your protected health information (PHI).
The National Institute of Health (NIH), in its article A Layman's Guide to the U.S. Health Care System, notes that, ”The vast majority of the population, about 74 percent, is covered by private health insurance. Those under 65 years of age and their dependents obtain private health insurance either through their employers (61 percent of the population) or by direct purchase of non-group health insurance (13 percent of the population). A small proportion of the population, 13 percent, has multiple health insurance coverage (e.g., both private and public health insurance), and 14 percent have no insurance.”
Furthermore, “There are more than 1,000 private health insurance companies providing health insurance policies with different benefit structures, premiums, and rules for paying the insured or medical care providers. These companies are regulated by State insurance commissioners; the Federal Government does not generally regulate insurance companies. States sometimes specify that certain, often narrowly defined, benefits or providers (e.g., chiropractic services) be covered by all health insurance policies sold in the State. States may also regulate insurance premium increases and other aspects of the insurance industry.”
Medical aid: Government assistance programs
Medical aid refers to government-funded healthcare programs like:
- Medicaid: A Layman's Guide to the U.S. Health Care System explains that, “Medicaid is a health insurance program for certain groups of the poor. It covers preventive, acute, and long-term care services for 25 million people, or 10 percent of the population. Medicaid is jointly financed by Federal and State governments.”
- Medicare: The guide further explains that, “Medicare is a uniform national health insurance program for the aged and disabled. Administered by the Federal Government, it is the single largest health insurer in the country, covering about 13 percent of the population, including virtually all the elderly 65 years of age or over (31 million people), and certain persons with disabilities or kidney failure.”
- Children's Health Insurance Program (CHIP): The National Center for Health Statistics describes CHIP as providing “Federal funds for states to provide health care coverage to eligible low-income uninsured children and pregnant women whose income is too high to qualify for Medicaid. Generally, CHIP is available only through age 18.”
- Veterans Health Administration: According to the NIH, the Veterans Health Administration “is the sub-cabinet level agency within the Department of Veterans Affairs (VA) that provides health care, including mental health care, to millions of veterans.”
These programs operate differently from private insurance:
- Funding comes primarily from tax
- Eligibility is based on specific criteria (income, age, disability status)
- Coverage is often more comprehensive with lower out-of-pocket costs
- Administrative processes and payment models differ from private insurance
Government healthcare programs are also covered entities under HIPAA.
HIPAA's role in both systems
Privacy protections
HIPAA's Privacy Rule requires both private insurers and government programs to:
- Protect your health information from unauthorized disclosure
- Provide you with access to your own records
- Notify you of their privacy practices
- Obtain authorization before sharing information for non-treatment purposes
Information exchange
When transferring between insurance plans or switching between private insurance and a medical aid program, HIPAA helps by:
Learn more: How health plans can share PHI for care coordination
Why this matters for healthcare providers
- Different billing systems: Private insurers use proprietary systems; government programs use standardized but complex protocols
- Administrative complexity: Requires staff trained in both systems and technology that interfaces with multiple platforms
- Varying compliance details: Though HIPAA applies to both, implementation differs between private and government programs
- Financial impact: Medical aid typically reimburses at lower rates than private insurance
- Patient transition challenges: Continuity of care issues when patients move between systems
- Documentation differences: Each system has it’s own requirements for record-keeping and reporting
- Authorization variances: Different processes for treatment approvals and referrals
- Reimbursement timelines: Payment schedules and processing times differ
- Technology requirements: Different electronic systems for claims submission and processing
- Payer mix management: Balancing needed for practice sustainability
FAQs
Can someone have both private insurance and medical aid?
Yes, some individuals qualify for both private insurance and government programs like Medicaid or Medicare, which can work together to cover healthcare costs.
Why are reimbursement rates lower for medical aid programs?
Government-funded healthcare programs operate on fixed reimbursement structures, often paying providers less than private insurers do for the same services.
What is coinsurance?
Coinsurance is the percentage of costs a patient pays after meeting their deductible, with the insurance covering the remaining portion.
What is the main difference between a deductible and a copayment?
A deductible is the amount you must pay out-of-pocket before your insurance starts covering costs, while a copayment is a fixed fee you pay for specific services.
