What Is Health Insurance? The Details You Probably Didn’t Know.
Health insurance is a crucial decision to be made, and with the right choices, you can keep yourself and your pocket healthy. However, with variegated options available in the market, it’s essential to gain a clear understanding before making any decisions. By answering simple questions such as What is health insurance? Why is it necessary, and How does Health Insurance work? You can gain a clear understanding to make an informed decision.
What Is Health Insurance?
Health insurance is an agreement between an insurer and the policyholder for covering multiple medical expenditures in return for periodic premium payments. In simple terms, if you enter into a health insurance contract with an insurance company, you will pay a fixed amount of premium every month, and your medical charges will be either shared or fully covered by the insurance as mentioned in the policy.
Health insurance covers various medical expenses such as doctor visits, prescribed drugs, screenings, advanced medical procedures, and other bills based on your selected policy. In some cases, the insurer reimburses the insured for the medical bills. In other cases, the company directly pays to the medical service provider. The benefits received are exempted from tax.
The provider network is involved in specific health insurance policies, and the policy covers you only when you consult the medical professionals within the network. Health insurance restrictions also include covering the prescribed drugs. If a low-cost generic medicine fulfills the same purpose, the insurer might not pay for a higher-priced brand name medicine.
Why Is Health Insurance Important, especially if you live in the USA?
Health insurance in the USA works on an annual basis. It partially or fully covers your treatment expenses from any illness or accident. It takes care of you and your pocket. It offers the following benefits:
Financial Protection
If chosen wisely, health insurance works as a shield for you against medical expenses in the USA. Instead of paying for all the medical bills, you can share them with an insurance company.
Preventive Services
Generally, health insurance includes preventive services free of cost or on nominal charges. You can go for screenings or get a shot under the preventive services.
Deductible Income
Health insurance is also a tax benefit since the benefits are exempted from federal taxes. The monthly premium on your insurance is also deductible on taxes.
Trusted network of professionals
The network provided by the insurance plan is tried and tested, so you have the contacts of reliable professionals. Which means you will be in good hands.
How to Get Health Insurance?
Usually, the employer benefit plan includes health insurance. In this case, the employer partially pays the premium on your health insurance. You can also apply for health insurance in the marketplace plan online or contact an agent to get health insurance.
You can apply for health insurance online by following simple steps:
Step 1: Make an account online
Step 2: Gather the documents required
Step 3: Check your eligibility
Step 4: Compare the plans
Step 5: Select the best one and pay the premium
How Does Health Insurance Work?
Health insurance works on three levels. On the first level, you have to incur the charges by yourself. The second level means you(insured) and the insurer share the bill. On the third level, the insurer fully covers the medical charges.
First Level:
It works on the basis of deductible. The deductible is the maximum limit set by the insurance contract until which you have to cover the whole amount on the medical bills for that year. For example, if the deductible mentioned in your policy is $1400, and your doctor’s visit bill is $1000, you will have to pay the amount, and the insurer will not cover any charges.
Second Level:
If the medical expenses in the given year exceed the deductible amount, the insurer will partially cover the amount based on the coinsurance clause in your policy. Hence the second level is where the insurer and you share the payment. Coinsurance is when you pay a percentage of the amount exceeding the deductible. For instance, if your bill amounts to $2000, your deductible is $1400, and your coinsurance ratio is 50/50, you will have to pay USD(1400+(600/2), i.e., $1700. You pay the total amount till the deductible and then the percentage of the excessing amount as mentioned in the health insurance policy.
Third level:
There is one more limit in the health insurance in the USA known as the OOP MAX or the out-of-pocket max. It refers to the maximum amount you need to pay for your medical charges in the given year. If your expenses exceed the OOP max limit, the insurer will cover all the costs from that mark. This is the third and the final level.
Besides the levels, co-pay allows you to share the cost with the insurer. Co-pay is the amount you need to pay for regular medical services per visit. The insurance company will take care of the rest of the charges.
All the coverage is based on the type of policy. You need to study and assess every detail before selecting your health insurance policy.
Metal Categories
Now you know the various charges and terms involved in health insurance. You need to understand the metal categories to answer the question- How does health insurance work? The Health Insurance Marketplace operated by the United States Federal Government categorizes the available insurance plans into four sections.
Bronze:
This category involves a low premium but a higher deductible. You have to spend less every month. However, you can enjoy the benefits of health insurance only when if you have to pay a hefty medical bill.
The IRS stated that the High deductible Health plan has a minimum deductible of $1400 for an individual and $2800 for a family. In other words, if your medical charges in the year do not cross the limit of $1400 or $2800, you won’t be able to use the benefits of the health insurance. IRS always specifies that HDHP plans can allow OOP max up to $7000 for individuals and $14000 for a family on the condition that you have to stay within the network.
Silver:
If you want to pay a moderate premium to get a reasonable deductible, you should select a policy in the silver category. Compared to the bronze category, you will have to pay less for medical expenses.
Gold:
Gold has a little higher monthly payment and lower deductible. If you know you have planned doctor’s visits, you can benefit from the gold category. Since the deductible is low, the insurance company covers the majority of the costs.
Platinum:
It has the highest premium amount but the lowest deductible. You have to pay the most at the end of every month but incur the least cost for the health-related charges mentioned in the policy.
Provider Networks and Types
Health insurance in the USA can also be categorized based on the provider network and related terms.
(HMO) Health maintenance organization:
HMO covers your expenses only when you consult a doctor within the network. This means the medical professional should be in contract or work with HMO. Exceptions can be made in case of an emergency. You are eligible for HMO only if you live or work in the given service area.
(PPO) Preferred Provider Organization:
Preferred Provider Organization is a flexible policy. You will have to pay less if you consult professionals within the network, but you can avail services outside the network without any referral by paying additional charges.
(EPO) Exclusive Provider Organization:
The insurance plan will only share or fully pay for your medical expenses if you avail of the services from within the network. If you visit any doctor, hospital, or specialist beyond the network, you will have to pay the total charges. Exceptions can be made in case of an emergency.
(POS) Point of Service:
It refers to the plan that offers you concession within the network and requires a referral from your primary care doctor to visit a specialist.
Health Insurance in the USA can be tricky if you are not aware of the terms and types. Once you are familiar with the meaning and functioning of health insurance, you can analyze various pointers in your policy and make the best use of your health insurance. According to the American Rescue Plan Act 2021, the eligibility criteria have been expanded for applying for marketplace health insurance. Now you are equipped with the information to check your eligibility and ensure yourself for a healthier future.
