How Health Insurance Works
In order to answer the question, “How does health insurance work?” it is important to begin by understanding that health insurance, as with all insurance, is a system of risk management. This will also help you understand low cost insurance, and what we talk about is true for online health insurance, as well. What that means is that when you sign up and pay your monthly premium, you are essentially paying for “protection” in the event of illness. The insurance company is basically gambling that you will not need medical coverage, and you are gambling that at some point you will.
How health insurance works has everything to do with how much you pay through premiums and deductibles. These are a measure of how much risk you and the insurer assume. In other words, the more expensive your premium and the smaller your deductibles, the more risk the insurance company assumes by agreeing to cover and pay more in the event of need. However, the lower your premium and the greater your deductibles, the more risk you assume by “betting” that you will not need expensive care.
Traditionally, health insurance was never designed to be health care payment system, it was intended to be a kind of safety net (or risk management system) to cover you in the event of need for acute care. (Also, never before has there been an option of online health insurance.) Other countries, such as Britain, Canada, France, and Sweden have government sponsored systems of health care where almost all costs for both acute and chronic care are covered (not insurance, per se), whereas the United States has a health insurance system. The United States has changed and may continue to shift more towards a health care system rather than a health insurance system.
How does Health Insurance Work Now?
Health insurance is provided both privately and publicly through Federal, state, and local governments. In this article, I am largely concerned with private insurance, which is separate from employer sponsored plans and available as individual and family plans purchased privately outside of any sort of employer or governmental sponsorship.
Regarding cost of insurance and low cost insurance, one important factor in determining the price you pay, is the overall expense to cover the group of people who have a particular policy. That is one reason why private policies can be so much more expensive than employer group plans. What you pay is in part determined by the cost necessary to pay for medical care for for the other members. If the costs are relatively low, then your cost will be lower. If you are part of a group, private or through an employer, whose members require frequent and expensive health care, then your costs will also be higher. One important technological factor potentially allowing lower cost health insurance is the Internet. It is simply a fact that online health insurance is cheaper than insurance plans purchased through a broker. However, you must be sure you understand what you are paying for and what you will get in the event of need.
Health insurance is currently made available through different kinds of managed care plans, such as preferred provider organizations (PPOs), health maintenance organizations (HMOs), and private fee for service plans (PFFS), which are also called indemnity plans. There are other different kinds of plans, such medical savings accounts (MSAs) but the HMO, PPO, and PFFS are the most common sort of plans, and they offer different systems of benefit management. They are called managed care plans because they offer policy holders a packaged set of benefits for hospital and medical coverage. How much coverage you get and the level of benefits depends on the plan and how much you agree to pay.
The notion that what you buy when you choose a health insurance plan is access to a package of benefits is key to understanding health insurance in the United States. Managed care plans are evidence that health care and health insurance have become integrated to some degree because the insurer is promising an entitlement to certain benefits and a certain level of care regardless of risk.
Typical Benefits
The amount of benefits and how much you pay depend on the company and the plan. Typically, plans offer such benefits as:
- Doctor visits for both routine and acute care
- Outpatient services
- Emergency services
- Urgent care services
- Ambulance
- Inpatient care
- Doctor care for both outpatient and inpatient services.
- Labs
- X-rays, PET scans, CT scans and other imaging
- Medical equipment and supplies
- Prescription drugs
- Mental health treatment (inpatient and outpatient)
- Substance abuse treatment
Your out-of-pocket cost are normally distributed as follows:
- premiums Your monthly payment that allows you to be signed up and eligible to receive benefits.
- Deductible A fixed amount of money that you are required to pay for health care before the insurance company starts paying. The amount of the deductible is determined by the insurer.
- Co-payment A fixed amount that you pay for services such as doctor visits, ambulance, and outpatient care. For example, for a primary care visit you might have to pay a $10 co-pay, and the insurer pays all remaining costs.
- Coinsurance Some insurance companies require a coinsurance for some services. Coinsurance is a percentage of the total amount the insurance company allows for payment. For example, if the total amount allowed by an insurer for outpatient surgery is $1000 and your coinsurance is 20 percent, you would have to pay $200, which is 20 percent of $1000. The insurance company would pay the remaining $800.
Although I have tried to simplify how health insurance works, I have covered the key, practical points as they apply to many people in need of insurance. Cutting costs essentially depends on how much risk you are willing to assume. In other words, the more benefits you can afford to give up, the more you lower cost. Thus, a high deductible catastrophic plan that provides coverage in emergencies, will be far less expensive than a low deductible, comprehensive medical plan with a great many more benefits. Also, if you are willing to be insured through an online insurance company, such as Essurance, you can potentially cut costs as well as the cost to company of doing business over the Internet comparatively lower.
Always be sure to do your own research and to read everything there is about any coverage you may be thinking about purchasing. If you have questions that the insurance company cannot answer, you can always contact your State Department of Insurance for assistance. Feel free to read our companion article, How Health Insurance Works for more information.
Related posts:
- How Does Health Insurance Work? Understanding Your Deductible
- Mental Health Coverage – Get Approved for Real Health Insurance
- Health Insurance – Invest in Peace of Mind
- Could Private Health Insurance Be Right For You
- Florida Health Insurance – Ways to Get Affordable Health Insurance
