How Does Health Insurance Work? An Overview
Healthcare costs in the U.S. can be very expensive if you are uninsured. Emergency care at the hospital can cost tens of thousands of dollars, and even routine doctor’s visits can cost hundreds of dollars.
In order to help with the high cost of healthcare, insurance companies offer a way to share the cost through health insurance policies. The way health insurance works in the U.S. is that insurance companies enroll members into their plans, and those members pay a monthly premium. Because most people are health and insurance companies make certain exclusions for some pre-existing conditions, the money that the members pay for the monthly premiums is used to cover the medical expenses of members who get injured or sick and need coverage.
Here’s an example to illustrate how this works.
Let’s say that someone has a health insurance plan and they get into a bad accident. Their health insurance plan has the following:
Yearly deductible: $3,000
Yearly out-of-pocket maximum: $5,000
Let’s say that this person gets into a bad accident and has $30,000 worth of medical bills. In this example, the person must pay their yearly deductible of $3,000 before insurance starts to cover any bills. Once they have paid $3,000, insurance kicks in and the person only pays 10% of the bills until they reach their yearly out-of-pocket maximum, $5,000. Once they reach this maximum, their healthcare plan pays for the rest of their covered cost.
So in this case, the most you can pay is $5,000, and insurance covers the other $25,000.
What Does Health Insurance Cover?
Since the implementation of the Affordable Care Act and the standardization or health insurance, all health insurance plans are required to offer certain benefits, including:
- Emergency care
- Laboratory tests
- Substance abuse treatment
- Mental healthcare
- Prescription drugs
- Maternity and newborn care
- Pediatric care
- Rehabilitation care
Where Can You Get Healthcare?
Typically, health insurance plans offer a network of doctors, hospitals, and other healthcare facilities, where they have negotiated deals to offer lower prices to their members. Some plans will limit you to this network, others will allow you to go out of network, but you will be required to pay more out of pocket. To see which doctors are in your network, you can check with your health insurance company, or employer (if you have insurance through your employer).
How Do I Get Health Insurance?
There are a few common ways that most people get health insurance. You may be able to get insurance:
- Through your employer
- Through Medicare
- Through Medicaid
- Through an individual plan
Through Your Employer
If you are a full time or part time employee, you may be eligible for healthcare through your employer. Most Americans get their health insurance through their employer, and this is often the most convenient and cost-effective way to get insured if you are employed, as when you get insurance through your employer, typically the employer covers some of the cost.
Medicare is a government-run health insurance program available for people over age 65, or some young people who are disabled. Medicare can be a great option if you are eligible, as you will typically be able to get good quality insurance for a much lower cost than you would on the marketplace.
Similar to Medicare, Medicaid is a government run health insurance program that provides healthcare for the uninsured who meet certain income and other requirements. If you are unable to afford healthcare on your own, Medicaid can be a great option to get coverage.
Through an Individual Plan
The health insurance marketplace established by the Affordable Care Act gives Americans the option to purchase insurance plans directly from insurance companies. If you are self employed or unemployed with enough savings to purchase healthcare yourself, individual insurance plans can give you excellent coverage.
Health insurance in the United States can be tricky to navigate. There are seemingly endless health insurance options, but some are expensive, others are hard to understand, etc. Fortunately, the basics of how health insurance works do not change and are easy to understand. If you know the basics of how health insurance works in the United States, you can better make an informed decision for what plan you need and what coverage works best for you and your family.