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Ever wondered how health insurance works? Bankrate tells all.
What is health insurance?
Health insurance is a type of insurance coverage that pays for health and medical expenses. Health insurance covers some or all of the costs of routine care, emergency care, and treatment for chronic illnesses. In the United States, health insurance is often provided by employers as part of a benefits package, while Medicare and Medicaid provide retired and low-income citizens with health insurance coverage.
Health insurance companies charge their customers a monthly premium for coverage, and in exchange the company agrees to pay all or most of the person’s medical costs. Even under the most generous plans, insured people must pay various out-of-pocket expenses for medical care. Primarily these expenses include copays and deductibles, which are up-front costs paid by the insured to medical professionals before they receive services.
Health insurance plans fall into two broad categories: private insurance and public insurance. Private plans are available from health insurance companies and are most commonly obtained through employers. Some of the top private insurance companies in the U.S. include:
- UnitedHealth Group
- Blue Cross/Blue Shield
In contrast, public insurance is provided by the government to eligible individuals and families. Medicaid is a state-run government insurance plan offered at little to no cost to low-income people. Who qualifies and the coverage available varies from state to state. Medicare is available to all Americans over the age of 65 and people with certain disabilities. Medicare only covers a portion of medical expenses, and individuals often need supplemental coverage to go along with it.
The Affordable Care Act (ACA), passed by Congress and signed into law by President Barack Obama in 2010, has materially altered the provision of health insurance in the U.S. over the last decade. The ACA sought to reform the medical care system, to extend health insurance to all uninsured Americans, and to lower health care costs.
The following terms are commonly used to describe different parts of health insurance policies:
- Co-insurance: The percentage of health care costs that the insured must pay, even after they meet the deductible. For example, after meeting the deductible, the insured may be responsible for 20 percent of costs and the insurance company covers the other 80 percent.
- Provider: The physician, health care professional or facility that provides medical services to the insured. A primary care physician is the doctor that oversees the patient’s overall care and manages a wide range of services.
- Network: The providers and facilities contracted to provide health care services for patients who have coverage with certain insurance plans.
- Preauthorization: Prior approval from a health insurance company required before a patient can access certain health care services, medications or equipment.
Do you have more questions about health insurance? Check out Bankrate’s comprehensive health insurance FAQ.
Health insurance example
The five main types of private health insurance plans available in the U.S. are:
- Health maintenance organization (HMO)
- Preferred provider organization (PPO)
- High-deductible health plan (HDHP)
- Point-of-service plans (POS)
- Exclusive provider organization plans (EPO)
These plans offer varying amounts of flexibility to consumers. Some allow patients to visit any doctor they choose, while others only allow patients to visit doctors within a small network. The amount that the insured has to pay for premiums also varies.
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