What is Health Insurance?
Health insurance is an insurance that covers the whole or a part of the risk of a person incurring medical expenses, spreading the risk over numerous persons. By estimating the overall risk of health risk and health system expenses over the risk pool, an insurer can develop a routine finance structure, such as a monthly premium or payroll tax, to provide the money to pay for the health care benefits specified in the insurance agreement.[1] The benefit is administered by a central organization such as a government agency, private business, or not-for-profit entity.
According to the Health Insurance Association of America, health insurance is defined as “coverage that provides for the payments of benefits as a result of sickness or injury. It includes insurance for losses from accident, medical expense, disability, or accidental death and dismemberment”
How Health Insurance Works
Health insurance can be tricky to navigate. Managed care insurance plans require policyholders to receive care from a network of designated healthcare providers for the highest level of coverage. If patients seek care outside the network, they must pay a higher percentage of the cost. In some cases, the insurance company may even refuse payment outright for services obtained out of network.
Many managed care plans—for example, health maintenance organizations (HMOs) and point-of-service plans (POS)— require patients to choose a primary care physician who oversees the patient’s care, makes recommendations about treatment, and provides referrals for medical specialists. Preferred-provider organizations (PPOs), by contrast, don’t require referrals, but do have lower rates for using in-network practitioners and services.
Insurance companies may also deny coverage for certain services that were obtained without preauthorization. In addition, insurers may refuse payment for name-brand drugs if a generic version or comparable medication is available at a lower cost. All these rules should be stated in the material provided by the insurance company and should be carefully reviewed. It’s worth checking with employers or the company directly before incurring a major expense.
Increasingly, health insurance plans also have co-pays, which are set fees that plan subscribers must pay for services such as doctor visits and prescription drugs; deductibles that must be met before health insurance will cover or pay for a claim; and coinsurance, a percentage of healthcare costs that the insured must pay even after they’ve met their deductible (and before they reach their out-of-pocket maximum for a given period).
Insurance plans with higher out-of-pocket costs generally have smaller monthly premiums than plans with low deductibles. When shopping for plans, individuals must weigh the benefits of lower monthly costs against the potential risk of large out-of-pocket expenses in the case of a major illness or accident.
One increasingly popular type of health insurance is a high-deductible health plan (HDHP), which, in 2020, must have IRS-mandated deductibles of at least $1,400 for an individual or $2,800 for a family, and out-of-pocket maximums of $6,900 for an individual/$13,800 for a family. These plans have lower premiums than an equivalent health insurance plan with a lower deductible. One other advantage: If you have one, you are permitted to open—and contribute pre-tax income to—a health savings account, which can be used to pay for qualified medical expenses.
In addition to health insurance, ill people who qualify can get help from a number of auxiliary products available on the market. These include disability insurance, critical (catastrophic) illness insurance, and long-term care (LTC) insurance.
What Is a Group Health Insurance Plan?
Group Insurance health plans provide coverage to a group of members, usually comprised of company employees or members of an organization. Group health members usually receive insurance at a reduced cost because the insurer’s risk is spread across a group of policyholders.
How Group Health Insurance Works
Group health insurance plans are purchased by companies and organizations, and then offered to its members or employees. Plans can only be purchased by groups, which means individuals cannot purchase coverage through these plans. Plans usually require at least 70% participation in the plan to be valid. Because of the many differences—insurers, plan types, costs, and terms and conditions—between plans, no two are ever the same.
Once the organization chooses a plan, group members are given the option to accept or decline coverage. In certain areas, plans may come in tiers, where insured parties have the option of taking basic coverage or advanced insurance with add-ons. The premiums are split between the organization and its members based on the plan. Health insurance coverage may also be extended to the immediate family and/or other dependents of group members for an extra cost.
The cost of group health insurance is usually much lower than individual plans because the risk is spread across a higher number of people. Simply put, this type of insurance is cheaper and more affordable than individual plans available on the market because there are more people who buy into the plan.
