Put simply, health insurance is a way to pay for your health care. Your health insurance protects you from paying the full costs of medical services when you’re injured or sick. And it works the same way your car or home insurance works: you or your employer choose a plan and agree to pay a certain rate, or premium, each month. In return, your health insurer agrees to pay a portion of your covered medical costs.
By becoming a member of a health insurance plan, you join a group of people who have also chosen that plan. This group is called a risk pool. Health insurers use this term because they measure the amount of risk associated with people in the same group.
A risk pool is a group of people whose medical costs are combined to calculate premiums. Healthier people generally have lower costs, counterbalancing those who need more medical care and have higher costs. In general, the larger the risk pool, premiums may be lower and more predictable.
Some years you may require lots of medical services, other years you may need less, but the whole point of having health insurance is so you can avoid paying the full cost of medical services on your own. When you need health care, you and your health insurer share the covered medical costs. If medical costs are exceptionally high for the risk pool, your health insurer may have to adjust the rates from time to time for those insured.
Your plan outlines your out-of-pocket costs for each service — whether it’s a copay, deductible, or co-insurance.
Your premium, or how much you pay for your health insurance each month, covers some or all of the medical care you receive — everything from prescription drugs and doctors’ visits to health improvement programs and customer service.
Most people choose a health insurance plan based on monthly cost, as well as the benefits and medical services the plan covers. But there are other factors to consider as well, like what you will be required to pay when you see a doctor or visit a health care facility.
These out-of-pocket payments fall into various categories and it’s important to know the differences between them:
Many health insurance plans include a deductible, which is the amount you pay each year before your health insurance plan starts paying for covered services. For example, if your plan has a $1,000 deductible, you will need to pay the first $1,000 of the costs for the health care services you receive.
Once you have paid this amount, your insurance will begin to pay a portion or all of your health care costs, depending on the health plan.
A copay is a flat fee you pay to see a doctor or get some other covered services, like a trip to the emergency room. For example, you may have a $20 copay to go see your doctor, but a $200 copay if you visit the emergency room.
Co-insurance is a percentage you pay for some covered services, like a trip to a specialist or a certain medical test. If your co-insurance is 20 percent, your health insurance company pays 80 percent of the cost of the covered services and you are responsible for the remaining 20 percent.
An out-of-pocket maximum is the most you will have to pay for your health care expenses during a plan period (usually a year) for covered services you receive from the doctors and hospitals that participate in the plan’s network. No matter what, you will not pay more than this amount each plan period for covered services.
Any care for covered services you receive after you meet your out-of-pocket maximum will be covered 100 percent by your insurer.
Payments by your health insurer are typically based on discounts the insurer negotiates with doctors and hospitals. Your insurer will pay your claim based on the rate it has agreed on with the doctors, hospitals, or health care facility in your plan network.
Many people are familiar with medical insurance that is offered by their own or a family member’s employer. There are other types of health care coverage, including public health insurance which is provided through the government.
Employer-based health insurance is insurance that is provided by an employer as a benefit to the employees. The employer purchases insurance on behalf of the employees and may cover all or some of the cost of the plan premium. Employees may be asked to contribute toward the cost of the monthly premium and/or contribute through copays, co-insurance, or deductibles.
Medicare is a federal health insurance program available for those that qualify, regardless of income. This plan is for people 65 years or older or for those who are younger with disabilities. Medicare has four distinct parts and is administered by the federal government. Federal rules determine eligibility and private insurance companies partner with the federal government to provide a wide range of coverage options and benefits.
Medicaid is a joint state/federal safety-net program that provides health care coverage for our nation’s most vulnerable individuals from all backgrounds and geographical regions who meet certain income and other eligibility requirements. As of March 2018, nearly 74 million Americans receive health care coverage from Medicaid, including: children, pregnant women, the elderly, the disabled, the working poor, and those suffering from substance use disorders.
Individual health insurance is health care coverage that is purchased on your own, as opposed to being provided by an employer or the government. Individuals can purchase coverage for themselves or their families through the individual Marketplaces established by the Affordable Care Act, through brokers or navigators, or directly from insurance companies.
No one plans to get sick or hurt. It’s just a part of life. But if you’re without a health insurance plan, illness and injury can quickly become devastating to your health and leave you overwhelmed with medical bills and expenses. Health insurance can limit your risk of paying for expensive illnesses and injuries by covering a portion of your medical care and other services, like a hospital stay or surgery.
Ultimately, health insurance can help you stay healthy — even when you’re not sick or hurt. Preventive care, which can be as simple as an annual visit with your doctor for a check-up and getting your recommended screenings, means that you’re more likely to avoid or significantly reduce the chance of developing a more serious condition later on.
You may even be eligible to participate in covered well-being programs, or receive discounts on health products and services.