How health insurance works

How health insurance works

Health insurance is a legal agreement you make with a health insurance company. That agreement includes a health insurance plan that helps you pay for specific medical care and services, so you don’t have to pay all the costs yourself.

How does health insurance work?

Health insurance helps reduce the amount you would otherwise have to pay for the high cost of medical care. This is how health plans usually work, but they can vary:

  • You pay a premium, usually monthly. This is a charge for having the health plan.
  • Most health plans have a deductible. A deductible is an amount you must pay out of pocket for care until the health plan begins to share a percentage of the costs.
  • When you meet the deductible and start the project, you begin to share the costs with the program. For example, your health plan might pay 80% of medical expenses, and you might pay 20%. This is called “coinsurance.” Most insurance ID cards show your deductible and coinsurance.
  • Preventive care is generally covered at 100%. This includes your annual checkup, a flu shot, childhood immunizations, certain wellness screenings, etc. (Some plans may require a copay, a small charge you pay at your doctor’s visit.)
  • You save money if you stay in-network. Network providers agree to charge lower rates to insurance company customers. You can usually find a list of network providers on your health insurance website, or you can call and ask for a list of network providers. This is a crucial aspect of how health insurance works to help you keep costs down.
  • Your health insurance may also come with additional services and programs. Some of them may be health and wellness discounts for products and services, incentive programs where you can earn cash prizes and other rewards for doing healthy activities, and more.

How do you get health insurance?

Your employer may offer you a health plan as part of your employment. The employer works with the insurance company to design the health plans. He may also choose to add specific programs and services to your benefits.

If you don’t get a plan through your employer, you can buy one on your own through a state or federal health insurance exchange. You can also buy one directly through a health insurance company like Cigna. You’ll find various plan options to help meet your specific needs.

What does health insurance cover?

Health insurance plans can cover a wide range of medical care and services. They often include preventive and non-preventive care and emergency care, behavioral health care, and sometimes vision and hearing care.

What you pay out of pocket and what the plan helps you pay for can depend on several factors. These factors include whether you have met your deductible, what your coinsurance is, whether you receive care from in-network facilities and providers and whether the care is preventive.

Here are examples of health insurance benefits your plan might cover:

  • Preventive visits: Things like an annual checkup (for adults or children) are usually covered at 100%.
  • Vaccines: Some vaccines are also covered at 100%. For example, many plans pay for an annual flu shot and certain types of vaccines for children.
  • Non-preventive doctor visits: You get a reduced rate for in-network doctors and specialists as part of the network. Your plan helps you pay your share of the costs once you meet your deductible.
  • Hospitalization: Your plan helps you pay your share of the costs once you meet the deductible. If required, you will pay less if you go to a hospital within your plan’s network.
  • Emergency room: Many health plans do not require you to go to an in-network emergency room in an emergency, but programs may vary.
  • Lab tests: If you go to an in-network lab, your lab costs will be lower. Your health plan also negotiates lower rates with them.
  • Additional or supplemental coverage that is added to your health plan: Having coverage for cancer care, accidents, and more can help you pay for care that is often expensive and unexpected.  

What does health insurance not cover?

What is not covered by health insurance can also vary depending on the plan. Here are some types of services that are typically not covered:

  • Alternative Medicine: For example, massage, acupuncture, herbal therapies, and more.
  • Cosmetic Surgery: Plastic surgeries, laser skin removal, liposuction, rhinoplasty (nose job), etc.
  • Weight-loss surgery: Options like gastric bypass and bariatric surgery may not be covered. But this depends on the plan you have. If medically necessary, some procedures may be substituted, so read your plan documents carefully.
  • Vein Surgery – Laser surgery to correct spider veins is often considered cosmetic and may not be covered unless a doctor can show that it is medically necessary.
  • Elective surgeries: Especially surgeries that a doctor cannot show are medically necessary.
  • Unapproved medical care: If you don’t obtain the required precertification for maintenance or service, your health plan may deny coverage. Precertification is pre-approval from your health insurer. Many health plans require this type of pre-approval for specific procedures or treatments.
  • Experimental procedures or treatments: Surgeries that use new technologies or methods that may not have proven results.

The Summary of Benefits and Coverage (SBC) document with your health plan will give you a detailed summary of covered and non-covered care and services. You’re better prepared to avoid paying unnecessary out-of-pocket costs when you know how your health plan works.

What are the benefits of having health insurance?

Health insurance benefits include:

  • Reduction of out-of-pocket costs for care since the prices are shared with the health plan.
  • $0 for preventive care: Annual checkups, routine health tests (mammograms, colonoscopies, cholesterol tests), and certain immunizations are fully covered by your health plan. This means getting expected care costs you nothing. If you had to pay for this on your own, you would pay hundreds of dollars from your savings each year or decide not to go to the doctor, with possible consequences for your health and your family.
  • Coverage for unexpectedly expensive medical care, such as hospital stays and maintenance of severe illnesses such as cancer, or in the event of an accident or severe injury. This doesn’t mean you don’t have to pay any costs, but the plan helps pay a significant portion of the cost after you meet your deductible. If you reach the annual out-of-pocket maximum (the most you’d have to pay in a year), your plan starts paying for your care.
  • Convenience: Having a health plan might give you some confidence knowing there’s a limit to what you’ll have to pay out of pocket for expensive medical care. Plus, because your health plan pays for most preventive care, you also have the confidence of knowing that you and your family can get all of your routine maintenance for little or no additional cost.

When should you get health insurance?

Health insurance only works when you have it. Consider your lifestyle. Do you live without taking risks, or do you like to live on the edge? Do you like adventure? Or do you enjoy being at home? Do you have a chronic health condition that requires treatment? Do you have a family to take care of? Here are some questions to consider when considering whether you should get health insurance.

  • If you are offered a health plan through your employer, you should take it. Your employer will help you pay for your health care costs. Preventive care usually costs you nothing, which means significant savings for you and your family.
  • If you have a family to care for, consider the potential costs of not having health coverage. Could you pay for routine checkups and screenings? With a health plan, you can trust that, in most cases, the plan pays 100% for most preventive care.
  • If you couldn’t afford the costs of an unexpected illness or injury, you should get health insurance. If you have the financial resources and could write a check for hundreds or even thousands of dollars, you may be able to live without health insurance. But if you’re like most people, a significant accident or illness isn’t an expense you can easily afford on your own.
  • If you only need coverage in case of a severe accident. If you don’t want to pay for a comprehensive health plan, feel your health is good, and the risk illness or injury is low, you might consider catastrophic health insurance. These plans offer a basic level of coverage in a severe accident.
  • If you’re about to change jobs, consider short-term health insurance to ensure you and your family are covered during any gap in your typical medical coverage.

In general, health insurance works similarly in all plans, but depending on your needs, the details of your medical coverage may vary. Make sure you know about your particular health plan.

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By Michael Caine

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