What Is Health Insurance And How It Works

Insurers use the term “provider” to refer to a clinic, hospital, doctor, laboratory, healthcare practitioner, or pharmacy that treats a patient’s illness. The “insured” is the person who owns the health insurance policy or is covered by it. Learn more about health insurance, including what it is, why it is necessary, the different types of plans, and legislative specifics.

What Is Health Insurance?

Health insurance is a contract between a company and a customer. The firm offers to pay all or part of the insured person’s healthcare bills in exchange for a monthly premium. Typically, the contract is for one year and requires you to pay particular charges linked to illness, injury, pregnancy, or preventative care.

Types of Health insurance

There are two types of health insurance: private and public (or government). There are a few additional, more particular types. The parts that follow will go into greater detail about each of these.

• Private health insurance

According to the Centers for Disease Control and Prevention (CDC), private health insurance plays a significant role in the United States’ healthcare system. According to the National Health Interview Survey, 63.7% of adults under the age of 65 in the United States have some form of private health insurance.

• Public, or government, health insurance

This sort of insurance involves the state financing healthcare in exchange for a payment. In the United States, public health insurance programs include Medicare, Medicaid, the Veterans Health Administration, and the Indian Health Service.

Other types

Some may characterize an insurer based on how it runs its programs and interacts with providers. Here are some samples of the different sorts of plans offered.

• Managed care plans

This type of plan involves the insurer entering into contracts with a group of providers in order to deliver lower-cost medical treatment to its customers. Out-of-network hospitals and clinics will face consequences and greater costs, but they will still provide treatment. The more expensive the policy, the more adaptable it is to a group of hospitals.

• Indemnity, or Fee-for-Service, plans

A Fee-for-Service plan provides treatment equally across all providers, allowing the insured to select their preferred location of care. On a payment plan, the insurer typically pays 80% of the costs, with the individual paying the balance as coinsurance.

• Health Maintenance Organization plans

These are organizations that offer medical care directly to the insured. The package usually includes a dedicated primary care physician who will coordinate all essential care. Health Maintenance Organization (HMO) plans often only cover therapy referred by a family doctor and have negotiated prices for each medical service to reduce costs. This is typically the cheapest form of plan.

• Preferred Provider Organization plans

A Preferred Provider Organization (PPO) plan is similar to an indemnity plan in that it allows the insured to see any doctor they choose. The PPO plan also includes a network of approved providers with whom it has negotiated rates. The insurer will pay less for treatment from out-of-network doctors. PPO plan holders, on the other hand, can self-refer to specialists without first visiting a primary care physician.

• Point-of-Service plans

A Point-of-Service plan combines an HMO and a PPO plan. The insured can opt to coordinate all treatment through a primary care physician, receive treatment inside the insurer’s provider network, or use non-network providers. The type of plan they have will determine the course of treatment.

• High-Deductible Health Plans (HDHP)

High-deductible health plans are becoming more popular. Higher deductibles and cheaper monthly rates. Health Savings Accounts (HSAs) with significant federal tax benefits are only available to their users.

In 2024, a high-deductible health plan has a $1,600 individual deductible or $3,100 family deductible. Maximum out-of-pocket costs are $8,050 per person and $16,100 per family. One benefit of high-deductible health plans is that you can open and contribute pretax income to a health savings account for eligible medical costs. These schemes provide triple tax benefits:

• Contributions are tax-deductible
• Contributions grow on a tax-deferred basis
• Qualified withdrawals for healthcare expenses are tax-free
• Internal Revenue Service. “Publication 969: Health Savings Accounts and Other Tax-Favored Health Plans.

Federal Health Insurance Plans

Private enterprises do not offer all of the health insurance in the United States. Medicare, Medicaid, and the Children’s Health Insurance Program (CHIP) are government health insurance programs that provide coverage to the elderly, disabled, and low-income individuals.

• The Affordable Care Act (ACA)

Obama signed ACA in 2010. The measure extended Medicaid for low-income patients in participating states. Under the Affordable Care Act, insurance companies cannot deny coverage for past diseases, and children can stay on their parents’ insurance until they turn. The ACA created the federal Health Insurance Marketplace. It forbids insurance companies from denying past condition coverage and lets kids continue on their parents’ policy till.

The Marketplace helps consumers and companies discover affordable, good insurance. Affordable Care Act Marketplace plans must include 10 essential health benefits. After December 31, 2018, the Tax Cuts and Job Act eliminated the ACA penalty for non-federal minimum medical insurance. A 2012 Supreme Court ruling repealed an ACA rule that states expand Medicaid eligibility to receive federal funds, which several states rejected.

• Medicare and CHIP

Disability coverage is financed by Medicare and CHIP. Medicare covers disabled adults, End-Stage Renal Disease, and ALS patients over 65. Health coverage for low-income children under 19 is offered under CHIP.

Why is the type of insurance plan important?

A person’s plan determines how they will get treatment and how much they will pay on the day. Congress created the Health Savings Account in 2003. It combines HMO, PPO, indemnity, and tax-advantaged savings accounts. In 2020, policyholders must combine this kind with a health plan with a deductible over $1,400 for individuals or $2,800 for families. HSAs can provide coverage to more treatments. Employers can make tax-free HSA payments for their workers.

Healthy people can save in the HSA for poor health later in life. People with chronic diseases like diabetes may not be able to save much in their HSA since they pay hefty medical bills. Despite reduced premiums, these plans frequently have high deductibles, so patients must pay for all medical services. As plans evolve, overlap increases. The lines between policy categories are blurring. Most indemnity plans employ managed care to control costs and provide enough funding. Many managed care plans offer Fee-for-Service features.

Who Needs Health Insurance?

• Everyone requires health insurance, which covers the costs of both small and significant medical difficulties, such as surgeries and treatment for life-threatening and incapacitating disorders.

How Do You Get Health Insurance?

• If your employer provides health insurance as part of their benefits package, you may be covered, but you may have to pay a portion of the costs. Self-employed individuals can purchase health insurance through a federal or state Health Insurance Marketplace. Medicare is available for those over 65, but many people supplement it. Low-income individuals and families may be eligible for supported coverage through

How Much Does Health Insurance Cost?

• The cost of health insurance varies greatly depending on the scope of coverage, the type of plan you choose, the deductible, and your age when you enroll. Copays and coinsurance also increase your expenses. The federal Health Insurance Marketplace’s four levels of coverage provide a solid indication of the costs of plans.
• It classifies plans as bronze, silver, gold, or platinum, with each category priced based on the degree of coverage offered and the cost to the user. There are 18 Centers for Medicare and Medicaid Services in the United States. “The Health Plan Categories: Bronze, Silver, Gold & Platinum.

Legislation

The Affordable Care Act makes it legally required in the United States to have some form of insurance. A person without health insurance must pay a fee.

However, in 2019, politicians abolished the Affordable Care Act’s Individual Mandate. Insurance is no longer a legal necessity for individuals in the United States. If the policy also covers the children in the household, a person can be on their parents’ insurance until the age of 26, even if they are:

• married
• living away from home
• not financially dependent on their parents
• eligible to be included on their employer’s coverage

Insurance is controlled at the state level, thus purchasing a policy in one state differs from doing so in another. Although state legislation can influence the cost of an insurance, the insurer makes the key decisions about a person’s coverage and reimbursements. People should consult their broker or customer support representative about the impact of any new regulation on their specific policy.

The Bottom Line

Unlike many other countries, the United States lacks a universal government-run health-care system. Instead, it employs a complex system of subsidies and tax breaks to keep health care cheap for the majority of the population.

If you are employed, you are most likely covered by employer-sponsored health insurance. If you are self-employed, you can purchase insurance directly from a private insurer. If you have a low income, you may be eligible for a cost subsidy. If you are elderly or disabled, you can obtain insurance through the government Medicare or Medicaid programs.

Summary

Health insurance helps to pay the costs of an insured person’s medical and surgical bills. There are several plan kinds, which differ in terms of what they cover and how a person can obtain treatment. Currently, a person in the United States must have some type of health insurance. Anyone without insurance may be subject to a fine.