Last Updated: March 11, 2022
Health care can be highly costly for the average American. For example, even a short doctor’s visit can end up costing hundreds of dollars. Health insurance then could come in handy. But how does health insurance work? What does it cover? And what are the types of healthcare available in the US?
Understanding Health Insurance
Health insurance covers medical, prescription drug, surgical, and dental expenses. It works by reimbursing the insured on all costs related to an illness or injury or by directly providing payment to the treatment facility.
Health insurance can be included in employer benefit packages, where the employer covers part of the premiums—which could also mean the amount is deducted from employee paychecks. In addition, the benefits received from health insurance are tax-free; although, there are some exceptions for S Corp employees.
Understanding health insurance doesn’t have to be complicated. For example, when you obtain health insurance, you also join a group of people (a risk pool) who are part of your particular health care plan that measures the amount of risk linked in that group of people. More specifically, this is a group whose medical costs are merged to calculate premiums. Risk pools of healthier people typically have lower costs. Ultimately, the purpose of a risk pool is to generate the premium at hand—if the risk pool is larger, the premiums may be lower.
|NOTE: Other types of insurance can be covered by your employer, which is the case with supplemental life insurance. This type of insurance is usually deducted from your paycheck.|
What Does Health Insurance Cover?
Benefits of US health care plans vary from one plan to another—not all cover a specific set of benefits. But under the Affordable Care Act and health care standardization, a list of essential health benefits is now required for all health care plans. In addition to the critical health benefits, other preventative services are covered but not necessarily free—the insured must pay deductibles or copayments.
All health insurance includes the following benefits:
- Emergency services.
- Hospitalization (including surgery)
- Maternity and newborn care
- Mental health and substance abuse treatment
- Outpatient care
- Pediatric services, such as oral and vision care
- Laboratory tests
- Prescription drugs
- Preventive services and management of chronic diseases
- Rehabilitation services and devices to help people with injuries or chronic conditions
|NOTE: Insurance doesn’t need to be restricted only to the US, especially if you plan to travel. Check out the best international health insurance and stay safe wherever you go.|
What Does Health Insurance Not Cover?
Although health insurance covers many areas in health care, a few services are typically not covered by insurance, depending on your state’s regulations. Consider four of the most common services (below) which health insurance does not cover.
Most health insurance plans do not cover medical services aimed at improving your appearance—e.g., cosmetic procedures, such as plastic surgery or dermatological work.
In addition, these procedures are not typically covered by health insurance because of the level of transparency regarding their pricing.
Health insurance includes some prescription drugs, such as drugs for autoimmune diseases. But they can also be prescribed for disorders that are not listed on the label of the medicine. In such cases, your prescription may not be covered by your insurer.
Coverage for fertility treatment procedures is dependent on the state you’re living in and are insured in. Such treatments are typically not covered by your health insurer, but they are required to pay for the necessary testing regarding infertility.
New Products or Medical Services
What does health insurance not cover that’s not necessarily only a service? New products, drugs, and medical services are constantly introduced to the medical field. Medical companies are encouraged to strive for progress and new inventions to improve the current mortality and morbidity rates. But most healthcare insurance companies are not on board with all newly introduced and developed technology, which means that they don’t offer coverage for something you might need.
|NOTE: For some, public health care coverage does not cover what they’re looking for, which is why private insurance is an option. Check out this article on all things private insurance covers and find out if it offers what you’re searching for.|
How Does Health Insurance Work?
Health insurance in the US can be quite tricky for many to grasp. Typically, any type of insurance is dependent on the premium, i.e., the amount you pay each month for your insurance. This premium covers (partially or fully) the medical aid you need in health care, including everything from a checkup to surgery and rehabilitation.
In addition to paying premiums, other factors ramp up the price and are required to be paid out-of-pocket when you visit a health care facility. Consider the following four main categories of out-of-pocket payments added on top of your premium.
A health insurance deductible is the amount you pay per year before your health insurance plan starts to cover your healthcare-related expenses. The deductible you pay depends on your plan. For example, if your plan has a $1,500 deductible, you must pay out-of-pocket for your first expenses up to $1,500. Afterward, the insurer will start paying (partially or fully) for your medical care expenses.
In addition to the health insurance deductible, one has to pay a copay, which is the flat fee you must pay to go to the doctors’ office or any other covered service from your plan. So, for example, if you need to see a doctor, they might require you to pay a $25.00 copay, depending on the service you need.
Co-insurance is the percentage of costs of covered medical services you pay, such as a medical test or a visit to a medical specialist. For example, if your plan’s co-insurance is 20%, your health insurer must cover 80% of the health insurance cost of these covered services, while you cover the rest 20%.
An out-of-pocket maximum is a maximum amount you need to pay for a one-year plan for all covered medical services. The amount you put down is the most you’ll pay for your plan, no matter the circumstances. After you spend this amount on deductibles, copayments, etc., the insurance company covers your health plan. A health Insurer typically negotiates for discounts on expenses with the facilities included in their plans. So usually, in such cases, the health insurer will pay the agreed amount with the health care facility.
|NOTE: There are many benefits of having health insurance. Although the most significant benefit is the financial coverage insurance provides, you also get free preventive care, including vaccines and screenings, even before you meet your deductible.|
Types of Health Insurance Plans
The most common way of obtaining health care coverage is through your own insurance or a family member’s employer. Note these types of insurance (and others) below.
Employer-Based Health Insurance
Employer-based health insurance is the most commonly acquired insurance, offered as a benefit for employees. The employer usually purchases this insurance on behalf of the employees and covers (partially or fully) the health insurance cost of the premium. Employers, however, sometimes ask for employees to partly cover the final cost of the monthly premium.
Medicare is the US federal health insurance program available for all who fulfill the program’s requirements, governed by federal rules. It is available in four parts (A, B, C, and D) for all over 65 years or younger citizens with specific disabilities. Private insurance companies partner with the federal government to provide coverage and benefits for users of Medicare.
Medicaid is a state and federal safety-net program offering health insurance for all vulnerable individuals, no matter their backgrounds. How does this type of insurance work regarding Medicaid? This program requires individuals to have a certain amount of income (in addition to other eligibility requirements). All citizens can apply for Medicaid, including children, the elderly, disabled, pregnant women, the working poor, those suffering from substance use disorders, etc.
Individual Health Insurance
Individual health insurance is insurance purchased on your own accord, not provided by an employer or the government. This type of health insurance includes health care coverage that individuals or families can purchase through brokers, insurance companies, or Marketplaces established by the Affordable Care Act.
Importance of Health Insurance
A simple visit to the doctors’ office can end up costing the average American hundreds of dollars, while hospitalization can rack up thousands. But there are many options to appreciate the benefits of having health insurance. In addition, by paying monthly and yearly premiums, you protect yourself from spending double and triple the amount of what it would cost you and prevent you from eventually going into debt.
With so many types of health care choices available to US citizens, it’s a privilege to take advantage of these options. You can save thousands of dollars yearly on all your health care necessities with health insurance, as it can get quite expensive if paying out-of-pocket.
With your primary health insurance plans, secondary insurance plans help cover all the gaps in cost and services. This includes vision, dental, and cancer insurance plans, which are typically not included in primary health insurance.
Many ask: how much is health insurance? There isn’t a set rule of how much a person should pay for health insurance. In 2020, the average cost for health insurance in the US was $456.00 per person. But it’s essential to note that this depends on the health care plan you choose. And once you’ve chosen a plan and a health insurer, the more you pay for your premium upfront, the less you consequently pay when in need of medical care.
Yes. One can have two health insurance plans, which are legal and even advisable for some who find themselves in specific circumstances.
Employer health insurance is selected and purchased by your employer. You may also encounter them as group plans. So how does health insurance work in such cases? Employer health insurance premiums are partially covered by your employer, while you cover the other part. And this health insurance is often deducted from your paycheck.