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How Health Insurance Works

Health insurance and the health care law

Many people can get health insurance through their job, a family member with a job, or a government program such as Medicare or Medicaid. In the past, people who did not have health insurance in one of these ways often went without it. The health care law makes it easier for more people to buy health insurance on their own. It also requires most Americans to have health insurance or pay a penalty. This makes it important to understand what health insurance is and how it works.

Do I need health insurance?

We all live with the risk that our health could suddenly get worse because of an accident or illness. If you get injured or sick, you will need health care. The question is, will you be able to get the health care you need, and if so, will you be able to afford it?

Health insurance can make it possible to see a doctor, be treated, or get needed tests and procedures. Health insurance helps to pay the costs of health care, which often costs a lot, and helps to provide financial security for you and your family. Regardless of your age or health condition, it’s important to have health insurance.

What is health insurance?

Health insurance is a contract between you and an insurance company that agrees to pay part of your medical costs if you get hurt or sick. In return, you make monthly payments to the insurer and help cover the cost of your care. Doctors and other health care providers usually agree to reduce their prices for health insurers, which lowers costs for insurance companies and patients

Health insurance plans generally cover preventive care to keep you healthy, such as vaccines and check-ups, and treatment for injuries or diseases. Health plans differ greatly on what they cover and how much of the costs they will pay, but the health care law is helping many people find a plan that offers the coverage they need at a price they can afford.

Don’t people go without health insurance?

Before the health care law took effect, there were more than 50 million people in America without health insurance. Some of them chose to go without coverage, while others were denied coverage or couldn’t afford it. All of them faced the risk of needing health care and not being able to get it. Without health coverage, you pay the full price of health care out of your own pocket. Just one night in a hospital can cost thousands of dollars. And treatment for a disease like cancer can cost hundreds of thousands of dollars.

People with or without insurance can go to an emergency room for urgent care. But emergency rooms do not offer check-ups, care for ongoing illnesses, or other preventive services that can help keep you healthy. If you have a serious injury or advanced-stage illness, an emergency room visit may only put you in stable condition. You may not get the surgery or treatment you need to get better. Still, if you don’t have health insurance you’ll be billed for the emergency room services.

A breakdown of the costs of health insurance

When choosing a plan, it’s important to look at all the costs that you will have to pay. It’s easy to focus on the monthly premium, but there are other costs, too:

  • Monthly premium – The amount you pay the insurer each month for health coverage.
  • Annual deductible – The amount you must pay for health care in a calendar year before the plan starts to help cover those costs.
  • Co-pays – A flat dollar amount you pay each time that you use a covered service, such as a doctor visit.
  • Co-insurance -- The percentage of the total cost of the service you must pay.

Beginning in 2014, the health care law will limit the amount of money your insurance company can make you pay for your health care in a given year (often called the out-of-pocket limit).

How do I know which plan is right for me?

It’s important to know what services a health plan covers and how much those services will cost you. Until now, people had a hard time finding details about their health plan. Insurers would often provide a long and complicated plan summary – and only if consumers asked for one. As a result, many people – about 25 million at one point – were “underinsured,” meaning their health plan did not cover the services they needed at a price they could afford.

The new health care law requires insurers to give consumers a Summary of Benefits that is short and easy to understand. Make sure you ask for one from any insurer you are thinking about buying a plan from. The law also requires all plans to cover essential health benefits, which include services needed to help prevent and treat a serious disease such as cancer.

What to look for in a health insurance plan – a checklist

Benefits

These are the health care services a plan covers. Beginning in 2014, most plans will cover basic benefits such as doctor’s visits, hospitalizations, preventive care, and prescriptions. But if you have special health needs such as costly drugs or need to see certain medical specialists, you may want to be sure your plan covers these health services, too.

Costs

Make sure you know how much a health plan will expect you to pay for your care in the form of monthly premiums, annual deductibles, co-pays, and co-insurance before the plan will pay for the services you need. Not all plans will limit out-of-pocket drug costs in 2014, which is a problem for those with high prescription costs

Network

A health plan may require you to get care from certain doctors, specialists, hospitals, and clinics. It may also require that you pay more or less of the costs of care than other plans. Some plans have broad networks that offer a lot of choices for care, while others have narrow networks in which choices are more limited. Before buying insurance, contact the plan administrator to ask the following questions:

  • Are the doctors you’ve been seeing included in the plan’s network?
  • Does the network include specialists and facilities you may need to visit for a certain health problem?
  • Are your prescription drugs covered?

Resources

Health Insurance Basics (HealthCare.gov) -- http://www.healthcare.gov/using-insurance/understanding/basics/


Last Medical Review: 07/25/2013
Last Revised: 07/25/2013