Overview of Health Insurance
An Overview of Health Insurance
What's Health Insurance?
Health insurance is a type of insurance policy that covers medical expenses arising from injuries, illness, conditions and health maintenance. Even if you’re in excellent health, consider how ruinously expensive it would be if you suffered a severe injury or contracted a debilitating disease.
Insurance companies issue health insurance policies in return for premiums paid by the insured and/or an employer, usually monthly. To understand how health insurance works, it’s useful to know these terms:
Covered conditions: not all policies cover all conditions. Covered conditions are ones for which the health insurance policy will pay for your medical care up to the limits established in the policy
Deductible: a set amount you pay each year toward your medical bills. Your health insurance policy begins paying for covered care once you pay the annual deductible. Policy deductibles can vary from nothing to more than 50%. Policies with larger deductibles charge lower premiums
·Coinsurance: once you’ve paid your deductible, coinsurance is the percentage of the costs of your medical care you share with your insurer. For example, if your policy specifies 20% coinsurance, you’d pay $20 of a $100 medical bill and your insurer would pay the rest
Copayment: this is a flat fee you pay each time you visit a medical professional or fill a prescription. Co-payments don’t satisfy your deductible requirement
Health Vs. Life Insurance
Health insurance covers medical expenses up to the policy limits, if any. It pays its benefits as a lump sum in response to a covered medical expense, is subject to extensive regulations, and the insured cannot recover any money when the insurance ends.
Life insurance covers the risk of dying and pays out a sum upon the death of the insured. It might also pay part of the death benefit in advance when the insured has a long-term or fatal condition. Life insurance can pay its benefits as a lump sum or in installments, and you can recover some of the money you invest in the policy (the cash value) when it ends.
You might be able to borrow some of the cash value from a life insurance policy but will have to repay it with interest. Life insurance policies offer wide variety and are less regulated than health insurance policies.
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Does Your Company Offer Health Insurance?
According to the Kaiser Family Foundation, more than half of the non-elderly population (approximately 151 million individuals) are covered by employer-sponsored health insurance. In 2017, the average annual premium per individual employee was $6,990, and the average family coverage premium was $18,764.
These costs increase each year by a few percentage points. Under the ACA, the number of full-time equivalent employees (FTEE, those working an average of 30 hours/week) determines whether a business must sponsor health insurance. Businesses with at least 50 FTEE are penalized if they don’t sponsor health insurance for at least 95% of their employees. The penalty was $2,320 per employee in 2018. As we discuss below, employers can offer several types of health insurance, although they must all comply with the ACA.
Most covered employees (81% in 2017) pay a share of their medical costs. Generally, this takes the form of an annual deductible that an employee must pay before the employer plan begins paying for covered conditions. The average annual deductible in 2017 was $1,505 for individual coverage. About 71% of covered workers must make copayments for primary care and 22% pay coinsurance.
Benefits of Health Insurance
Health insurance has the obvious benefit of paying a portion of your medical costs so that you don’t have to. Here are three benefits that are less obvious but important for the insured:
Benefiting from negotiated prices: insurance companies have great expertise negotiating the prices they’ll pay hospitals and other medical facilities for the services and supplies utilized by patients. Hospitals want patients, so they’re incentivized to be included in an insurer’s network by agreeing to lower prices. These lower prices make health care less costly and can reduce your medical bills
Helping you avoid the emergency room: ER visits are notoriously expensive. They’re also inefficient, because ER doctors don’t know your medical history and the ER might not offer you the best treatment options. If you don’t have health insurance, visiting the ER may be your only access to health care. This can saddle you with steep medical bills. If you can’t pay them, then society must make up the shortfall or the ER could go out of business. If you have health insurance, you can visit your primary physician and avoid the ER
Receiving preventative care: thanks to the ACA, most health insurance policies must cover the cost of preventative services without charging coinsurance or a copayment. These services include items like diabetes screening, addiction counseling and depression screening, among many
Types of Health Insurance
Individual ACA-compliant health insurance is available from the healthcare marketplaces with four levels of co-payment:
Bronze: you pay 40%
Silver: you pay 30%
Gold: you pay 20%
Platinum: you pay 10%
In addition, you can get a catastrophic policy with a high deductible ($7,350 in 2018) that covers preventative care and the first three medical visits for free, without regard to your deductible. You must be under age 30 to buy this plan, which carries a lower premium.
Employers can offer the following ACA-compliant plans:
Health Maintenance Organization (HMO): you receive healthcare from a narrow network of providers. Your primary care doctor usually must refer you before you can see a specialist. No paperwork required after visits
Preferred Provider Organization (PPO): moderate freedom to choose a provider. You don’t need a referral to see a specialist. Paperwork required for out-of-network visits, which are more expensive
Exclusive Provider Organization (EPO): more in-network providers than an HMO. No coverage for out-of-network providers. Lower premium than a PPO. Little or no paperwork
Point of Service Plan (POS): a blend of PPO and HMO features. More freedom of choice in and out of network. You need referrals to see a specialist. Moderate paperwork for out-of-network providers
High-Deductible Health Plan (HDHP) with or Without a Health Savings Account (HSA): resembles a catastrophic plan, with a high deductible and lower premiums. Can take the form of an HMO, PPO, EPO or POS. If you choose, you can have an HSA to help pay for health care with pre-tax dollars. Many ACA Bronze plans qualify
Medicare is the government-run health insurance plan for seniors 65 and older. It pays 80% of covered expenses in return for reasonable premiums. You can add drug coverage and buy supplemental plans with additional benefits to cover some or all of the remaining 20% of costs. You can instead purchase a Medicare Advantage Plan that provides Medicare and additional benefits in a single plan.
Medicaid is the government health coverage for millions of Americans, including low-income adults, pregnant women, children, people with disabilities and the elderly. It’s administered by the states, which share funding with the federal government.
Get the Right Health Insurance for You
If you’re eligible for Medicare or Medicaid, one of these options would be the right insurance for you. If you’re under 30 and in good health, you might want a catastrophic policy, although this means you’ll be liable for large medical bills if you get seriously sick or injured.
Employer plans are a good choice if available, since the employer pays part of the premium. Otherwise, you can get coverage from the ACA healthcare marketplace at the copayment level that makes the most sense for you and your family. If you want governmental help paying for your Marketplace policy and your medical bills, you must get a Silver policy (30% copayment). You can qualify for these benefits if your household income doesn’t exceed certain limits.