What Is Health Insurance?
If you’re struggling to understand the ins and outs of health insurance today, you’re not alone. The passage of the Patient Protection and Affordable Care Act in March 2010 caused a major transformation in the health insurance market. This is the largest magnitude of changes since the launch of Medicare in 1965. So now that health insurance has some new rules, it’s important for you to know the basics and the critical aspects of how health insurance works.
Health insurance is a form of coverage that helps pay for medical expenses incurred by the insured. It is designed to give you peace of mind while getting a routine check-up or receiving medical attention. Bills resulting from visits to the emergency room or a necessary surgery can be covered by insurance. Your health insurance can also protect family members as well, even extending beyond medical care and into dental care, vision, and prescription drug costs. Consulting your local insurance agents can help you a lot while choosing and understanding health insurance coverage specified for your state or city.
There are some key terms when it comes to insurance that you need to know so you can understand how it works. The followings are some common terms associated with health insurance coverage:
- Premiums– These are the payments you make on your insurance. The rates for premiums are affected by factors such as the costs of the various medical services they will cover and how likely the customers are to need those services.
- Benefits- These are payments the insurance plan makes to cover all or part of medical costs.
- Co-pays – Included in some plans, co-pays are the set prices for various services you may need. For example, you may have a $15 co-pay a visit to your primary care physician.
- Deductible- The amount your responsible to pay for covered medical costs before your insurance begins to pay each year.
- Coinsurance- This refers to the costs of covered medical services being shared between you and the insurance company after you meet the deductible.
- Claims- Claims are filed by the doctor or medical facility after you have a medical service. A claim is simply a formal request asking for payment based on the insurance plan’s terms.
How Does Health Insurance Work?
To illustrate how health insurance works, we’ll go through a basic example. Let’s say that someone develops an illness and needs surgery plus a subsequent stay at the hospital. The costs of the patient’s covered medical expenses add up to $60,000. Without health insurance, the patient would be responsible for paying that $60,000 amount. This obviously could be a major financial hit. Insurance can alleviate the situation and make the expenses smaller for the patient.
Let’s say this patient has health insurance with the following terms:
- $6,000 Deductible
- $8,000 Maximum out-of-pocket
- Coinsurance of 20%
In this example, the patient/policyholder is responsible for the first $6,000 in charges. This is the deductible, as we covered earlier in the key terms. After the deductible is paid, there are $54,000 of expenses left. The patient has a responsibility of 20% coinsurance, which is 20% of the remaining cost, or $10,800. This exceeds the maximum out-of-pocket cost of $8,000. So that means the policyholder pays $6,000 toward the deductible and only $2,000 of the coinsurance. The insurance plan pays for the rest of the covered expenses. To break it down:
- The policyholder’s payments come to $8,000
- The health insurance carrier pays $52,000.
Additionally, since the patient/policyholder reached their maximum out-of-pocket limit for the year, they won’t have to pay anything out of pocket for the rest of the year for covered medical expenses.
Main Types of Insurance Plans
The two common plans in health insurance are HMO and PPO. HMO, as described by Humana, usually have co-pays and monthly premiums that are lower than those of a PPO plan. HMO plans require few or no claims to be filed because the insurance company pays the healthcare provider directly. PPO plans usually include an annual deductible and its full payment initiates coverage. PPO often requires a claim to be filed before a policyholder’s benefit reimbursement can be made.
How To Get Coverage
There are several different ways to get health insurance:
- Employer-sponsored health plan– This is when your employer offers health insurance, and will likely cover a portion of the insurance premium.
- Brokers- Some people buy their own insurance through a broker, which is an insurance specialist who can search for insurance that fits your health needs and income.
- Health Insurance Marketplace- There are government-approved qualified health plans that businesses and individuals and can review and buy on HealthCare.gov
- Medicaid– A federal, state, and locally funded health plan for some low-income people, the elderly, pregnant women, and people with disabilities.
- Medicare– Offered by the federal government for people 65 and older, Medicare is a health plan that is usually much less costly than private health plans. It is also available for some people with disabilities. You might have to pay some monthly premiums and you have some choices about your coverage.