What is Health Insurance and How Does it Work?
Health insurance is a contract between an insurer and an individual or family. It covers medical expenses in exchange for a premium, which is typically paid monthly or annually.
Learn about coverage limits, deductibles and copayments. Also find out how your plan rewards you for choosing to stay in network.
What is health insurance?
Health insurance is a contract between an individual or family and a health care provider that specifies the covered medical costs. It can be private or provided through the government. It can be short term or lifelong. It is regulated at the state and federal level. State regulations pertain to private insurance while ERISA and HIPAA govern self-insured group health coverage and Medicare.
Most health insurance plans have a network of doctors, hospitals and other providers that the insurance company contracts with at discounted rates. These are known as in network. When you use in network providers it saves the insurer money and in turn lowers your co-pays, deductibles and coinsurance. Some plans even offer additional benefits for using in network providers. These include health maintenance organizations (HMOs) and preferred provider organizations (PPOs). Other options for health insurance are through individual/family policies purchased outside of an employer or association or through the Affordable Care Act marketplaces.
How does health insurance work?
Health insurance covers the costs of an insured’s medical care and prescription drugs. It also protects the policyholder against financial loss due to high deductibles and coinsurance.
The vast majority of people with receive it through their employer or a government-sponsored program such as Medicaid. Individuals who do not have employment-based coverage can purchase it through the individual marketplace created by the Affordable Care Act or directly from private insurers.
Most health insurance plans use a network of providers – doctors, hospitals, labs and pharmacies – that have contracted with the insurer to offer services at a discounted rate. When you go to a doctor in the network, you pay less (or none) because your insurer has already paid for part of the service through coinsurance. If you choose to see an out-of-network provider, you’ll pay more. The insurance company hasn’t yet covered that amount through coinsurance or your deductible. This is a big reason why many people seek out in-network health care when they need to visit the doctor.
What are the benefits of health insurance?
Health insurance covers a wide range of medical services and treatments. It can help pay for doctor visits, trips to the emergency room and large hospital bills associated with surgery or other major treatments. It can also cover preventive care, like yearly physicals and screenings.
Many people who have health insurance don’t need it, but for those who do, it can be a lifesaver. Without it, the costs of healthcare can be prohibitive and even with financial aid from their employer or the ACA, some people may not have access to the care they need.
Most private plans offer negotiated discounts with doctors and hospitals who agree to work with the insurer at a reduced rate. These are called in network providers. Out of network providers are billed at a higher cost. This is why most people choose to stay with their in network providers. The Affordable Care Act requires most Americans to have healthcare coverage or pay a penalty.
How do I get health insurance?
If you are not covered by a group health plan at work, you can purchase individual coverage through the ACA marketplace or directly from a private insurer.
When selecting a health plan, consider your medical needs and budget. Many plans offer a choice of deductibles, copays and coinsurance. A deductible is the amount you must pay for care each year before your plan begins to pay. Copays are fixed fees, and coinsurance is a percentage of the cost of covered services after you meet your deductible.
This is because the doctors have agreed to a discounted rate with your health insurance company. If you visit out-of-network providers, you may rack up additional costs.