Health Insurance Basics
A Beginner’s Guide to Coverage
Health insurance covers the costs of both routine medical care and unexpected health situations. While having health insurance isn’t mandatory in most states, it can be crucial in ensuring you have access to healthcare services you can afford.
Understanding the basics of health insurance can help empower you to make informed decisions about your healthcare coverage. By knowing the specifics of your options, you can choose the one that best fits your healthcare needs and financial circumstances, ensuring access to necessary medical services while minimizing out-of-pocket expenses.
Key Health Insurance Terms
To best learn how to compare your health insurance options, it’s first critical to understand what the key terms and factors of every plan mean and how they work together.
- Premium: A health insurance premium is the regular payment made to the insurance company to maintain your coverage and ensure that the insurer will cover part of your medical costs as specified in your policy.
- Deductible: A health insurance deductible is the amount you must pay out-of-pocket for covered healthcare services before your insurance plan begins to pay.
- Copayment: A health insurance copayment, or copay, is a fixed amount you pay directly to the healthcare provider at the time of service for a covered healthcare visit or medication.
- Coinsurance: Health insurance coinsurance is the percentage of costs for a covered health service that you’re responsible for paying after you’ve met your deductible.
- Out-of-Pocket Maximum: The out-of-pocket maximum is the maximum amount you will have to pay for covered healthcare services in a policy period, after which your insurance will pay 100% of the costs for covered benefits.
Types of Health Insurance Plans
Health insurance comes in two major categories: qualifying health coverage and non-qualifying health coverage.
Qualifying health coverage means the plans adhere to regulations and standards set by the Affordable Care Act (ACA), including offering mandatory essential health benefits to ensure comprehensive care. Non-qualifying health coverage, on the other hand, does not have to follow ACA regulations but can offer critical supplemental or temporary coverage when needed.
Within both categories, there are many types of health insurance plans that provide different network, payment, and care structures. Learn more about these health insurance basics to determine which best match your needs.
Qualifying Health Coverage Plans
These plans all meet Affordable Care Act (ACA) regulations in offering comprehensive health coverage. All health insurance plans from the Health Insurance Marketplace, government-sponsored plans, and most employer-sponsored plans fall within this category. Learn about the basics of the different plan types available.
Health Maintenance Organization (HMO) Plans
Health Maintenance Organization (HMO) plans are a type of health insurance that requires members to select a primary care physician (PCP) from a network of healthcare providers. To access specialized care or see a specialist, HMO members usually need a referral from their PCP, making these plans more cost-effective but potentially restrictive in terms of provider choice.
Preferred Provider Organization (PPO) Plans
Preferred Provider Organization (PPO) plans are a type of health insurance that offers more flexibility in choosing healthcare providers. PPO members can seek medical care from both in-network and out-of-network providers, but they typically pay lower out-of-pocket costs when using in-network providers.
Exclusive Provider Organization (EPO) Plans
Exclusive Provider Organization (EPO) plans are a type of managed care health insurance that combine features of both HMO and PPO plans. EPO members can only receive coverage for medical services from providers within the plan’s designated network, except in cases of emergency care. However, unlike HMO plans, EPOs usually do not require referrals to see specialists within the network.
Point-of-Service (POS) Plans
Point of Service (POS) plans are a type of health insurance that combine elements of HMO and PPO plans. POS plan members are required to select a primary care physician (PCP) from an approved network, and they need referrals from their PCP to see specialists. However, they also have the option to seek care outside the network, although it will usually involve higher out-of-pocket costs.
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HMO |
PPO |
EPO |
POS |
|
|---|---|---|---|---|
Average premium |
Low |
High |
Moderate |
High |
Average network size |
Moderate |
Large |
Large |
Variable |
Designated primary care physician |
Required |
Not required |
Not required |
Required |
Referrals to seek specialist care |
Required |
Not required |
Required |
Required |
Out-of-network care coverage |
Not covered |
Yes, partially covered |
Medical emergencies only |
Yes, with limitations |
Metal Tiers
Qualifying health plans from the Health Insurance Marketplace are categorized into metal tiers. This categorization is based on the percentage of healthcare costs that the plan covers on average.
- Bronze: Bronze plans cover about 60% of the average healthcare costs, and the insured individual is responsible for the remaining 40% through deductibles, copayments, and coinsurance. Bronze plans usually have lower premiums but higher out-of-pocket costs.
- Silver: Silver plans cover about 70% of the average healthcare costs. The insured individual pays the remaining 30% through cost-sharing. Silver plans may be eligible for cost-sharing reductions (CSRs) if the insured’s income level qualifies.
- Gold: Gold plans cover approximately 80% of the average healthcare costs. The insured individual is responsible for the remaining 20% through cost-sharing. Gold plans generally have higher premiums but lower out-of-pocket costs compared to Bronze and Silver plans.
- Platinum: Platinum plans cover about 90% of the average healthcare costs. The insured individual pays the remaining 10% through cost-sharing. Platinum plans have the highest premiums but the lowest out-of-pocket costs among the metal tiers.
Consumers can choose the metal tier that best aligns with their healthcare needs and budget. Those who expect to use healthcare services frequently or have ongoing medical conditions may opt for higher-tier plans with more comprehensive coverage, while healthier individuals may prefer lower-tier plans with lower premiums but higher out-of-pocket costs.
Specialty Qualifying Health Options to Consider
Some other types of qualifying health coverage options are designed for specific needs or features. These plans typically have special eligibility criteria or offer specialized coverage.
High-Deductible Health Plans (HDHP)
A High-Deductible Health Plan (HDHP) is a type of health insurance that comes with a higher deductible than traditional health plans. HDHPs are designed to lower monthly premiums while encouraging individuals to take more responsibility for their healthcare expenses by paying higher out-of-pocket costs until they reach the deductible threshold.
Catastrophic Health Insurance
Catastrophic health insurance is a type of health coverage designed to protect individuals from significant medical expenses in the event of a severe illness or injury. Only those under 30 or with hardship exemptions are eligible for these plans. It typically offers low premiums but comes with a high deductible, making it suitable for young and healthy individuals who want financial protection against major medical emergencies while paying lower monthly costs.
Government-sponsored Health Insurance
These are federal programs designed to provide health coverage for specific populations. They include:
- Medicaid: Medicaid provides healthcare coverage to low-income individuals and families, as well as those with disabilities and pregnant people. It’s administered by states in collaboration with the federal government and offers a wide range of medical services, including doctor visits, hospital stays, and prescription drugs. Eligibility and coverage can vary by state.
- CHIP (Children’s Health Insurance Program): CHIP, also known as SCHIP, is designed to provide healthcare coverage for children in low-income families who are not eligible for Medicaid. It covers essential services like doctor’s visits, vaccinations, dental care, and some mental health services.
- Medicare: Medicare is primarily for seniors aged 65 and older, as well as some younger individuals with disabilities. It offers hospital and medical service coverage, and beneficiaries have the option to enroll in prescription drug coverage as well. Medicare plays a vital role in providing comprehensive healthcare coverage for older Americans, ensuring they have access to essential medical services as they age.
- TRICARE: TRICARE is designed for serving members of the U.S. military, including active-duty service members, retirees, and their families. Its plans and options ensure comprehensive healthcare coverage both in the United States and abroad.
- Some VA benefit plans: VA benefits encompass a range of services and support provided to eligible veterans by the U.S. Department of Veterans Affairs. These benefits can include healthcare services, and can provide supplemental coverage in tandem with other health insurance plans.
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Non-Qualifying Health Coverage Plans
These plans do not meet Affordable Care Act (ACA) essential health benefits and often offer limited benefits. They are designed for supplemental, temporary, or emergency coverage. Learn the basics of the different plan types available.
Short-Term Health Insurance
Short-term health insurance is a type of temporary health coverage that provides individuals with basic medical benefits for a limited duration, usually up to 12 months. It is designed to bridge gaps in coverage, such as during job transitions or for those waiting for enrollment in a more comprehensive health plan, but may not offer the same level of benefits as long-term health insurance options.
Short-term health insurance might be suitable for recent graduates, those between jobs, or those waiting for employer-sponsored insurance to begin. It can also be an option for healthy individuals who want basic coverage for unexpected medical events while paying lower premiums compared to traditional long-term health plans, though using this type of coverage long-term is not recommended.
Benefit-Specific Health Insurance
Insurance plans that focus on specific benefits can supplemental qualifying health coverage to provide well-rounded care. This includes stand-alone plans for:
- Vision: Vision insurance typically covers routine eye exams, as well as tests and treatments for some eye conditions and diseases, such as glaucoma. Many plans also provide coverage for vision equipment like prescription eyeglasses and contact lenses.
- Dental: Dental insurance covers routine oral exams and cleanings. Depending on the plan, coverage may extend to corrective dental work, such as fillings, root canals, and braces.
- Hearing: Hearing insurance focuses on keeping your aural health intact. It provides coverage for hearing exams as well as equipment like hearing aids.
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What to Look for When Choosing a Health Insurance Plan
When choosing a health insurance plan, several considerations come into play:
- Premiums: Lower premiums often mean higher out-of-pocket costs when you need care, while higher premiums can offer lower out-of-pocket costs but a greater monthly commitment. When looking at plan premiums, ensure the monthly cost comfortably fits within your budget.
- Network of doctors: Some plans have a specific network of doctors and hospitals that offer services at a lower cost. It’s crucial to check if your preferred healthcare providers are in network because even if your health plan allows out-of-network visits, in-network care is always more affordable. If you require the services of specialists, ensure that they are covered under the plan and are in network.
- Coverage: What services does the plan cover? This can include doctor visits, hospital stays, preventive care, prescription medications, and more. If you have a chronic condition or plan to become pregnant, you’ll want to choose a plan that covers your regular doctor visits, medications, and any necessary specialists. Likewise, if you regularly take certain medications, check if they’re covered by the plan and what the copayments would be.
- Out-of-pocket maximums: This is the maximum amount you would have to pay for covered services in a year. Once you reach this limit, your insurance covers 100% of the costs. Comparing the out-of-pocket maximum between plans can help you select one plan over another if it is more likely for you to meet that spending cap.
- Quality of care: The plan’s quality rating can help you understand how much satisfaction other members have had with the plan’s care and service.
The goal is to find a balance between cost and coverage that works for your specific health needs and financial situation. It’s crucial to read the fine print and fully understand what is and isn’t covered by the insurance policy.
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What This Means For You
Back in 2020, a staggering 31.6 million Americans — roughly 10% of our population — found themselves without health insurance. Some may have decided to go uninsured due to financial constraints, while others might have felt they were in good health and didn’t need coverage.
Yet, it’s worth giving health insurance another thought. It can make regular medical expenses more manageable; it also steps in to assist with unexpected illnesses and accidents, providing a financial safety net. Understanding the basics of health insurance plans available as well as how to select which is best for your needs will ensure you can make the best decision for coverage.