What is health insurance?

Health insurance is a type of insurance that helps cover the cost of an insured person’s medical and surgical expenses.

Insurers use the term “provider” to describe a clinic, hospital, doctor, laboratory, healthcare practitioner, or pharmacy that provides treatment for an individual’s condition.

The “insured” is the owner of the health insurance policy or the person with the health insurance coverage.

In this article, learn more about what health insurance is, why it is important, types of plans, and legislation details.

What is it?

Depending on the type of health insurance coverage a person has, either the insured pays costs out of pocket and receives reimbursement, or the insurer makes payments directly to the provider.

In countries without universal healthcare coverage, such as the United States, health insurance is commonly included in employer benefit packages.

Following the introduction of the Affordable Care Act in 2010, the number of people without insurance fell by over 20 million to reach the lowest ever level in 2016, according to the Kaiser Family Foundation (KFF).

However, from 2017, the number of adults without insurance rose again by 2.2 million, from 26.7 million in 2016 to 28.9 million in 2019. Between 2016 and 2019, the percentage of people without insurance rose from 10% to 10.9%. However, the rate of people with health insurance is still higher than it was before the introduction of the Affordable Care Act.

A 2012 report from the Commonwealth Fund states that one-quarter of all U.S. citizens of working age have experienced a gap in health insurance coverage. Many people in the survey lost their health insurance when they became unemployed or changed jobs.

The KFF adds that Black people and those with low incomes are more likely to have no insurance than other groups.

The level of treatment a person receives in emergency departments varies significantly depending on what type of health insurance they have.

Types

There are two main types of health insurance: private and public, or government. There are also a few other, more specific types. The following sections will look at each of these in more detail.

Private health insurance

The Centers for Disease Control and Prevention (CDC) say that the U.S. healthcare system relies heavily on private health insurance. In the National Health Interview Survey, researchers found that 63.7% of Trusted Source of people under the age of 65 years in the U.S. has a type of private health insurance coverage.

Public, or government, health insurance

With this type of insurance, the state subsidizes healthcare in exchange for a premium. Medicare, Medicaid, the Veterans Health Administration, and the Indian Health Service are examples of public health insurance in the U.S.

Other types

Some people may also define an insurer by the way it administers its plans and connects with providers. Here are some examples of the types of plans available.

Managed-care plans

With this type of plan, the insurer will have contracts with a network of providers to provide lower-cost medical care to its policyholders. There will be penalties and additional costs added to out-of-network hospitals and clinics, but they will provide some treatment.

The more expensive the policy, the more flexible it is likely to be with the network of hospitals.

Indemnity, or Fee-for-Service, plans

A Fee-for-Service plan covers treatment equally among all providers, allowing the insured to choose their preferred place of treatment. The insurer will typically pay 80% of costs on an indemnity plan, while the individual pays the remaining costs as a coinsurance.

Health Maintenance Organization plans

These are organizations that provide medical care directly to the insured. The policy will usually have a dedicated primary care physician who will coordinate all necessary care.

Health Maintenance Organization (HMO) plans will usually only fund treatment referred by a family doctor and will have negotiated fees for each medical service to minimize costs. This is usually the cheapest type of plan.

Preferred Provider Organization plans

A Preferred Provider Organization (PPO) plan is similar to an indemnity plan in that it allows the insured to visit any doctor they prefer. The PPO plan also has a network of approved providers with which it has negotiated costs.

The insurer will pay less for treatment with out-of-network providers. However, people with a PPO plan can self-refer to specialists without having to visit a primary care physician.

Point-of-Service plans

A Point-of-Service plan functions as a combination of an HMO plan and a PPO plan. The insured can choose between coordinating all treatment through a primary care physician, receiving treatment within the insurer’s provider network, and using non-network providers. The type of plan they have will dictate the progress of treatment.

Why is the type of insurance plan important?

The type of plan a person has dictated how they will approach getting the treatment they need and how much money they will need to pay on the day they receive it.

In 2003, the U.S. Congress introduced a new option: the Health Savings Account (HSA). It is a combination of an HMO plan, a PPO plan, an indemnity plan, and a savings account with tax benefits. However, in the plan year 2020, a policyholder must pair this type with an existing health plan that has a deductible of over $1,400 for individuals or $2,800 for families.

HSAs can top up coverage, extending existing plans to cover a wider range of treatments. If an employer pays for an HSA on behalf of their employees, the payments are tax-free. An individual can build up funds in the HSA while they are healthy and save for instances of poor health later in life.

However, people with chronic conditions, such as diabetes, might not be able to save a large amount on their HSA, as they regularly have to pay high medical costs for the management of their health concerns.

These plans often carry very high deductibles, meaning that although premiums can be lower, people often end up paying the full expenses of any required medical treatment.

There is more overlap as plan types evolve. The distinctions between policy types are becoming more and more blurred.

The majority of indemnity plans use managed care techniques to control costs and ensure that there are enough resources to pay for appropriate care. Similarly, many managed care plans have adopted some characteristics of Fee-for-Service plans.

Legislation

In the U.S., having some degree of insurance is legally necessary as part of the Affordable Care Act. A person without health insurance has to pay a fine.

However, policymakers removed the Individual Mandate in the Affordable Care Act from the legislation in 2019. Insurance is no longer an individual legal requirement in the U.S.

If the policy also covers the children in the family, a person is allowed to be on their parent’s insurance until the age of 26 years, even if they are:

  • married
  • living away from home
  • not financially dependent on their parents
  • eligible to be included in their employer’s coverage

Insurance is regulated at the state level, meaning that buying a policy in one state is different from doing so in another.

Although state legislation can affect the price of a policy, the important decisions about a person’s coverage and reimbursements rest with the insurer. People should be sure to have their broker or customer services representative discuss the impact of any changing legislation on their particular policy

Summary

Health insurance helps cover the cost of an insured individual’s medical and surgical expenses. There are various plan types, and they vary in terms of what they cover and how a person can access treatment.

Currently, a person in the U.S. must have some form of health insurance coverage. Anyone without a form of coverage may need to pay a fine.

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