An insurance policy is a contract between an individual or a group and an insurance company. The policy outlines the terms and conditions of the health coverage the company will provide, the types of medical services and treatments covered, the costs associated with the coverage, and any exclusions or limits on the policy.
The person(s) covered under the policy pays a premium to the insurance company to maintain their coverage. In exchange, the insurance company agrees to pay for certain medical expenses incurred by the policyholder, subject to the terms and conditions outlined in the policy.
A health insurance plan aims to provide you and your family with the financial capacity to spend for medical care and hospitalization after any unfortunate incident. Securing an insurance plan has many benefits, and there are several components you must understand when buying an insurance policy. These can be confusing, but don’t fret because we’re here to help you along the way..
Important Concepts about Health Insurance
Before you buy an insurance policy, it’s important to understand key concepts about it so you can have an idea of how they work. For starters, you should learn about these definitions.
Premium. This is the amount you regularly pay (usually monthly) to maintain your medical insurance coverage.
Deductible. This is the amount you must pay out of pocket before your insurance coverage begins to kick in.
Co-pay. This is the fixed amount of money you have to pay for certain medical services, such as doctor visits or prescription drugs, even after your insurance coverage has begun.
Out-of-pocket maximum. This is the most that you will pay out of pocket for covered medical expenses in a given year.
Network. Most insurance plans have a network of providers (doctors, hospitals, etc.) with negotiated lower rates. When you go to a provider that is a part of this network, your out-of-pocket costs will be usually lower than those outside.
Coinsurance. This is a cost-sharing arrangement in which the policyholder and the insurance company pay a percentage of the covered medical expenses.
Medical underwriting. This is a process in which the insurance company evaluates the medical history and the current health condition of the applicant to determine the coverage they’re eligible for and the premium they have to pay.
Lifetime maximum. This refers to the maximum amount of money an insurance plan will pay to a policyholder over their lifetime.
How Health Insurance Works
Insurance providers spread the financial risk of medical expenses among many people. Policyholders pay a premium to maintain their coverage, and in exchange, the insurance company agrees to pay for certain medical expenses incurred by the policyholder subject to the terms and conditions outlined in the policy.
When a policyholder needs to use their insurance coverage, they typically have to pay a portion of the cost out of pocket, such as a deductible or co-pay. The insurance company then pays for the remaining covered expenses up to the limits specified in the policy.
For example, if a policyholder has a $1,000 deductible and $20 co-pay for doctor visits, and the policy pays 80% of the remaining covered medical expenses, if the policyholder incurs $5,000 in medical costs in a year, they would have to pay the first $1,000 out of pocket. The insurance company would pay 80% of the remaining $4,000, or $3,200. The policyholder would be responsible for the remaining $800 and any medical expenses incurred above the $5,000 covered by the policy.
Different Types of Health Insurance
There are several different types of medical insurance available, each with its own features and benefits. Here are the most common types of medical insurance:
Individual insurance is a type of coverage purchased by an individual for themselves and their family. It can be purchased through the government marketplace or an insurance company.
Group medical insurance is a type of coverage purchased by a company for its employees. Group insurance typically provides coverage for employees and their dependents.
Medicaid is a government-funded medical insurance program for low-income individuals and families. It is available in the United States, and is run jointly by the federal government and individual states.
Medicare is a government-funded medicare insurance program for individuals 65 or older and some younger individuals with disabilities.
Health maintenance organization (HMO) plans usually require referrals to see a specialist, and typically provide coverage only when care is received within their network.
Preferred provider organization (PPO) plans allow members to see any doctor they want without a referral, but members pay more if they use doctors outside of the network.
Exclusive provider organization (EPO) plans work like PPOs, with the main difference being that members typically have a smaller network of providers.
Point of service (POS) plans usually require referrals to see a specialist, but members can also see doctors outside of the network, but will pay more for out-of-network care.
Each type of plan has different costs, benefits, and coverage restrictions, so it’s important to study and compare these options so you can find one that best fits your specific needs and budget.
The Bottom Line
Health insurance is an essential tool that helps individuals and families manage the high cost of medical care. These plans are subject to certain terms and conditions; by paying a premium to maintain their coverage, a policyholder’s insurance company agrees to pay for certain medical costs they incur. Different types of health plans are available, and understanding their differences is vital to help you decide which plan you actually need.
Are you looking for an independent health insurance provider? If so, then schedule a call with us so we can help you find the best coverage for you.