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What Exactly Is Health Insurance?

The cost of health care can be prohibitive, especially when hospitalization or surgical procedures are required. A major medical expense could result in extreme financial hardship or even bankruptcy. By purchasing a health insurance policy, an individual or family can eliminate the large financial risk of an illness or injury.

  1. Identification

    • Health insurance is a vehicle used to transfer the high financial risk and expenses associated with medical care from an individual or organization to an insurance carrier. The insured entity makes payments to the insurance company in the form of premiums, which it uses to pay for claims made by its policyholders. Health insurance can be obtained from private insurance companies, or in the case of Medicare, from government entities.

    Basic Types

    • One type of health insurance is a fee-for-service plan, in which your health care provider sends your claim to your insurer after your visit. The insurer then reimburses the health care provider based on the provisions of your policy. A less expensive form of insurance is a managed care plan such as an HMO or PPO, in which you receive care from an establish network of providers. One innovation in health insurance is the health savings account, or HSA, which combines a major medical health-insurance plan with a savings account, which can be used to help pay for out-of-pocket expenses.

    Out-of-Pocket Costs

    • Although health insurance usually pays for most of your major health-care costs, certain plans require you to pay for smaller expenses out of your own pocket. You may have to meet an annual deductible, which is a dollar amount you have to pay before your insurance goes into effect. After you meet the deductible threshold, you might also have to pay coinsurance, which is the amount of the cost you share with your insurer before it begins to pay in full. A copayment is a predetermined amount you pay for doctor visits or prescription drugs.

    Availability

    • People often have access to health insurance through their employer in the form of group coverage. This is usually the least expensive alternative available, as insurers can spread the claims risk among a large group of people, which helps minimize expenses. People without access to group insurance can attempt to purchase an individual policy from a private insurer, although individual policies are harder to qualify for and usually come with much higher premiums.

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