A health insurance policy is a legally binding contract between you and a health insurance company. This agreement includes a health plan that assists you in paying for certain medical care and services so that you do not have to pay the full cost on your own. In this article, we’ll be addressing how health insurance works.
How Does Health Insurance Work?
Health insurance works to reduce the amount of money you would otherwise have to pay for expensive medical care. This is how most health plans work, but they can differ:
You must pay a monthly premium. This is the cost of having the health plan.
Most health insurance plans have a deductible. A deductible is the amount of money you must pay out of pocket for medical care before your health insurance kicks in to share a percentage of the costs.
When you reach your deductible and your plan kicks in, you begin sharing costs with your plan. For example, your health plan may pay 80% of your medical costs while you pay 20%. This is referred to as “coinsurance.” Most insurance ID cards display your deductible and coinsurance.
Preventive care is usually completely covered. This includes things like your annual check-up, a flu shot, vaccinations for children, certain wellness screenings, and more. (Some plans may require a copay—a small fee paid at the time of the doctor’s visit).
Staying in-network saves you money. Customers of the insurance company will receive lower rates from network providers. You can usually find a list of network providers on your health insurance company’s website or by calling and asking for a list of in-network providers. This is an important part of how health insurance works to keep your costs low.
Your health insurance policy may also include additional no-cost programs and services. This could include health and wellness discounts on services and products, incentive programs where you can earn cash and other prizes for participating in healthy activities, and more.
How do you get Health Insurance?
As part of your job, your employer may provide you with a health plan. They collaborate with the insurance company to create the health plans that they offer. Your employer may also decide to include certain programs and services in your benefits package.
If your employer does not provide coverage, you can purchase one on your own through a state or federal health exchange. You can also purchase one directly from a health insurance company, such as Cigna. There are several plan options available to help you meet your specific needs.
What does Health Insurance Cover?
A wide range of medical care and services may be covered by health insurance plans. Preventive and non-preventive care, as well as emergency care, behavioral health, and, in some cases, vision and hearing, are frequently included.
What you pay out of pocket and what your plan covers can vary depending on a variety of factors. These factors include whether or not you have met your deductible, what your coinsurance is, whether or not you are receiving care from in-network providers and facilities, whether or not your care is preventive, and more.
Here are some examples of health insurance benefits that your policy may provide:
- Preventive visits: Such as an annual check-up (adult or child), are usually fully covered.
- Vaccinations: Some vaccinations are also fully covered. Many plans, for example, cover an annual flu shot as well as certain types of childhood vaccinations.
- Non-preventive doctor visits: As a network member, you receive a reduced rate for in-network doctors and specialists. Once you’ve met your deductible, your insurance company will pay its share of the bill.
- Hospitalization: Once you’ve met your deductible, your insurance will pay a portion of the bill. If you go to a hospital in your plan’s network, you will pay less.
- Emergency Room: Many health plans do not require you to go to an in-network ER in an emergency, but plans vary.
- Lab work: If you use an in-network lab, your lab work costs will be lower. Your health plan also bargains for lower rates with them.
- Additional or supplemental coverage added to your health insurance policy: Cancer care, accident coverage, and other benefits can help you pay for care that is often expensive and unexpected.
What does health insurance not cover?
What is and isn’t covered by health insurance varies depending on the plan. The following are some examples of services that are not typically covered:
- Massage, acupuncture, herbal healing, and other complementary therapies are examples of alternative medicine.
- Plastic surgery, laser skin removal, liposuction, rhinoplasty (nose job), and other cosmetic procedures are examples of cosmetic surgery.
- Weight-loss surgery: Gastric bypass and bariatric surgery may not be covered. However, this is dependent on the plan you choose. Some procedures may be covered if medically necessary, so carefully review your plan documents.
- Vein surgery: Because laser surgery to correct spider veins is often considered cosmetic, it may not be covered unless a doctor can demonstrate that it is medically necessary.
The following are some of the advantages of having health insurance:
- Lower out-of-pocket costs for care because it is shared with your health plan.
- $0 preventive care—annual check-ups, routine health screenings (mammogram, colonoscopy, cholesterol screening), and certain vaccinations are all fully covered by your health plan. This means that routine care is free. If you had to pay for this yourself, you’d have to spend hundreds of dollars out of your own savings each year, or you might decide not to go to the doctor, which could jeopardize your and your family’s health.
- Coverage for unexpectedly high-cost medical care, such as hospitalization and treatment for a serious illness such as cancer, or in the event of a serious accident or injury. That is not to say there is no cost to you; however, once you have met your deductible, your plan will cover a large portion of the cost. When you reach your annual out-of-pocket maximum (the most you must pay in a year), your plan begins to pay for all of your care.
When should you get?
Health insurance is only useful if you have it. Consider your way of life. Do you prefer a risk-free lifestyle or do you prefer to live life on the edge? Adventurous? Or are you a homebody? Do you have a chronic health condition that needs to be treated? Do you have a family to support? Consider the following when deciding whether or not to obtain health insurance:
- If your employer offers you a health plan, you should take it. Your employer contributes to the cost of your medical care. Preventive care is usually free of charge, which is a significant savings for you and your family.
- Consider the potential costs of not having health coverage for your family if you have one. Could you afford even routine check-ups and screenings? With a health plan, you can rest assured that, in most cases, the plan will cover 100% of most preventive care.
- If you cannot afford the costs of an unexpected illness or injury, you should purchase health insurance. If you have a lot of money and can write a check for hundreds or even thousands of dollars, you might be able to go without health insurance. However, if you’re like most people, a major illness or accident is not something you can afford on your own.
- If you only require coverage in the event of a serious accident. If you don’t want to pay for a comprehensive health plan and believe you’re healthy and at low risk of illness or injury, you might consider catastrophic health insurance. These plans provide you with basic coverage in the event of a serious accident.
In general, how health insurance works is similar across plans, but the specifics of your medical coverage may vary depending on your needs. Make sure you understand your specific health plan or any plan you’re thinking about joining.