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What Is Health Insurance?

Health insurance covers medical expenses for illnesses, injuries, mental health, accidents surgeries and more. Sometimes, though rarely, health insurance may cover dental expenses. If you’re an employer, you’d insure your employees with a group health insurance plan . For individuals and families who do not have health insurance through an employer, individual and family health insurance is an option.

Accidents can happen at any time and most car insurance coverages are often limited. People fall ill without ever anticipating it. Loved ones may develop a condition you didn’t foresee. Medical expenses are sometimes so high that people declare what’s called Medical Bankruptcy. With health insurance, you have access to doctors and hospitals that work with your insurance company and are paid in large part without you having to reach too deeply into your own pocket. It’s important to have health insurance coverage, which puts a cap on what you are required to pay if you ever need surgery or are hospitalized for a length of time.

When you buy health insurance you are protecting assets, like your home, car and savings. Without health insurance, your entire life savings are in jeopardy if you get one overwhelming medical bill. Because of the Affordable Care Act, if you have health insurance, out-of-pocket costs can’t exceed $6,600 for individuals or $13,200 for a family. Without insurance, the sky’s the limit.

Health insurance is a relatively new form of insurance. After WWII, many U.S. companies began offering health insurance and in 1954 the Internal Revenue Service made health insurance premiums non-taxable. Now, it pays for visits and services to clinics, hospitals, doctors, laboratories and pharmacies.

How Does Health Insurance Work?

Medical insurance protects you from medical risks, like accidents, medical emergencies, mental health issues and chronic diseases. Unlike other forms of insurance, like auto insurance or home insurance, health insurance helps you get the health care you need by only paying a fraction of the cost through monthly premiums, copayments and sometimes co-insurance. Depending on the type of health insurance you have, you pay medical costs out of pocket and are reimbursed or your insurer pays your provider directly while you pay a small portion, if anything at all.

In the U.S, the number of people with insurance was 44 million in 2013. In 2016, it was fewer than 28 million, according to the Kaiser Family Foundation. Many people lose health insurance when they become unemployed or changed jobs. The large numbers of people without health insurance are especially vulnerable to medical bankruptcy, especially in the face of a pandemic. Another reason that having quality health insurance is important: the level of care you receive in emergency departments varies greatly depending on the type of health insurance you have and if you have no insurance at all.

Who Needs Health Insurance?

Unless you are disabled or age 65 and over and qualify for Medicare or if your income qualifies you for Medicaid, you need health insurance. Even the very wealthy buy health insurance because an emergency or chronic medical condition can be very expensive otherwise.

Is Health Insurance Required?

Initially, when the Affordable Care Act was rolled out, there was an Individual Mandate, which required that every American enroll in a health care plan. However, that Individual Mandate was later repealed. No longer is health insurance mandatory, but that may always change according to new legislation. Most Americans continue to buy health insurance when their employers do not offer it. Health insurance can prevent Medical Bankruptcy, which is a problem in America. The cost of healthcare is too high to manage without health insurance.

What Are the Different Types of Health Insurance?

First there are two main categories of health insurance: private health insurance and public or government health insurance. According to the National Health Interview Survey, 65.4 percent of people below the age of 65 have private health insurance.

When you reach the age of 65, you are qualified to enroll in Medicare, which is a state subsidized health care plan for seniors. Medicaid, which is for the less-advantaged population, and the Veteran’s Health Administration are other examples of public health insurance. For individuals who are offered health insurance through an employer, you have group health insurance. If you buy health insurance for yourself and your family members you have an individual or family health plan.

There are different types of health plans under these umbrellas as well. You have the option of choosing a health maintenance organization (HMO), a preferred provider organization (PPO), exclusive provider organization (EPO), point-of-service (POS) plan and a high-deductible health plan (HDHP), which may or may not be linked to a health savings account (HSA). HMOs, PPOs and FSS are the most popular plans available.

With an HMO plan, you have less freedom to choose your health care providers, but it has the least amount of paperwork and is usually more affordable than a PPO. In an HMO, the primary care doctor manages your care and refers you to specialists. With an HMO you pay a premium, copays and/or co-insurance. There is no annual deductible and you usually only pay a flat fee for a visit. Annual checkups are free. There is usually never any insurance billing on your part. Your primary care physician’s office does most of the paperwork.

With a PPO plan, you have a moderate amount of freedom in choosing your healthcare providers. You do not need to get a referral from a primary care doctor to see a specialist. You do pay more in costs if you see a doctor outside of your in-network provider list. Unless you see an out-of-network provider, there is little paperwork. In a PPO, you pay a premium, copay or coinsurance. Some PPOs have two deductibles, one for in-network care providers and one for out-of-network providers.

Also called indemnity health insurance, FSS is traditional insurance, where you pay for your doctor out-of-pocket and get reimbursed by the insurance company afterwards. Before you are reimbursed, you must pay the deductible. FSS provides basic coverage like doctor visits, hospitalization, surgery and more. Major Medical kicks in after FSS runs out of coverage if you elect to have both types of coverage. FSS plans tend to focus on treating illnesses, not preventative measures and screenings. They also limit the number of days you are covered for a hospital stay. People tend to like FSS plans because they do not limit your choices in care providers, but others dislike that it can be expensive and does not focus on preventative care.

An EPO is a healthcare plan that only allows you to see healthcare providers or get hospital service within its network. Kaiser Permanente is one example. You are not covered at all if you see a healthcare provider outside of the network unless it’s an emergency. You do not have to get a referral to see a specialist and monthly premiums are usually low.

A POS health plan manages your care as a hybrid of HMO and PPO plans. Like an HMO, a primary care physician is chosen, but patients may go outside of the network for health care services at an additional cost.

An HDHP plan has a higher deductible than a traditional plan with lower monthly premiums. But you have to pay your own costs until you reach the deductible amount before your insurer begins to cover expenses. Often people combine an HDHP with a health savings account (HSA) so as to pay for medical expenses with tax-free money.

Health Insurance Coverage Options

The health insurance tier system is categorized as bronze, silver, gold and platinum. The value of each of these metals is reflected in the depth of coverage and price of the health plans you’ll find in the marketplace. This means that premiums for platinum health care plans will cost the most in monthly premiums, but they will also cover more of your health care needs so you don’t pay as much out-of-pocket when you see doctors and specialists. You’ll also pay less for treatments and surgery. For bronze health plans you pay very little monthly but when you visit a doctor, you pay more than you would with a higher-tier plan.

The difference between the value of each tier is important to keep in mind when you choose your health plan. Otherwise, you may not be making the best decisions that result in savings. In a platinum plan, you only pay roughly 10% of the cost of a healthcare provider’s services. Compare that to paying 40% out of pocket with a bronze plan.

As you can see, it makes sense for a young, healthy person who does not see a doctor more than maybe once a year to buy the bronze plan. Of course, there are sometimes unforeseen circumstances, like a sudden illness or accident, that may require more doctor's visits and possibly a hospital stay, which would end up being very costly if you’re paying 40% of the cost yourself. For this reason, even the healthiest young person who doesn’t have an emergency fund may be better off with a silver plan (paying 30% of costs) or even gold (paying about 20% of costs).

In the end, it’s your choice to take as much risk as you want to. Choosing which level of protection you need is a personal decision that should be made based on lifestyle and health. The majority of American choose silver health insurance plans.

How much Is Health Insurance?

Costs vary from state to state, ranging from as little as $330 a month on average to as much as $766 on average. Many factors determine a health insurance rate, including age, location and who’s covered by the plan. Also, tobacco users pay more. You can choose which level of coverage you need, which affects pricing greatly, and different insurers offer different rates. Compare health insurance rates at no charge by entering your basic information here.

How Are Rates Determined for Health Insurance?

Health insurance plans are rated based on the amount of coverage the insurer offers and your total out-of-pocket expenses. Usually, the higher the premium, the less you pay out of pocket. Factors that determine health insurance rates include:

• Age
• Location
• Who’s covered by the plan
• If you smoke or use tobacco
• The type of plan you choose

Your sex and health are no longer used to determine your health insurance rate. You also cannot be denied health insurance due to a pre-existing condition, due to the Affordable Care Act.

What is a Deductible in Health Insurance?

A deductible is the amount you pay for covered health services before insurance begins to pay expenses. For instance, if you have a $2,000 deductible, you will pay for your own medical costs out-of-pocket until you reach $2,000, after which insurance pays all costs other than copayment or coinsurance. Many plans pay for certain services, like annual checkups, before you’ve met your deductible. All Marketplace health plans pay the full cost of certain preventive benefits before you meet your deductible. Some plans have separate deductibles for certain services, like prescription drugs. Family plans usually have an individual deductible and a family deductible, which applies for all family members.

If you pay a higher monthly premium you’ll likely have a lower deductible and/or coinsurance. So, you may pay more monthly, but if you’re hospitalized or need surgery, you pay less before insurance kicks in. However, if you pay less each month, if you need surgery or a costly medical procedure, you’ll likely pay more. There is no perfect way to choose how to spread this out. You have to predict what your medical needs will be or protect yourself in case something unusual goes wrong with your health. The amount that the insurance companies pays overall varies from policy to policy. A Lifetime Maximum is the maximum amount the insurance company will pay for the life of the policy.

Are Health Insurance Premiums Tax Deductible?

There is such a thing as a medical expense deduction on taxes. In order to reap the benefits, you must itemize to take the deduction. Note that the deduction is limited to the total amount of your overall costs if they exceed 7.5% of your adjusted gross income. The way to do it is to combine your premiums with other significant medical expenses to reach the 7.5% threshold. Most people do not qualify for this deduction because their expenses are lower than 7.5% of their adjusted gross income.

What Is COBRA Health Insurance?

When you elect COBRA, you’re electing to have identical coverage to what you had before you lost your job, unless changes were made to plan benefits for all active employees. From the qualifying event forward, COBRA insurance covers the insured for 18 or 36 months. The standard 18-month period can be extended if one of the beneficiaries is disabled and meets specific requirements or if a second qualifying event happens (death of a covered employee, legal separation or divorce of a covered employee and spouse, electing Medicare, or losing a dependent child status under the plan).

You’re eligible for COBRA if you lost health benefits because your hours were decreased; if you were laid off or fired; if your spouse retired and went on Medicare; if you got a divorce from the covered employee (or legally separated); if the covered employee died; or if the dependent child loses dependent child status.

For you to be eligible for COBRA, you had to have been insured in a group health insurance plan on the day before the qualifying event (getting laid off, fired, etc.). The employer must continue providing health benefits to its existing employees of 20 or more people for you to receive the extended COBRA coverage.

You’re not eligible for COBRA if you were let go in a case of gross misconduct. If you do not qualify for unemployment, you may also not qualify for COBRA.

When Is Open Enrollment for Health Insurance?

In some states, open enrollment opened up due to coronavirus. However, the usual open enrollment period varies per state but is generally November 1 - December 15. However, some states like California allow enrollment through the end of January. Also, there are certain circumstances that allow individuals and families to enroll in health insurance during a special enrollment period. These qualifying events include but are not limited to: losing a job (and health benefits), pregnancy and marriage/divorce.

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