understanding the basics of health insurance


Health insurance is an important part of healthcare for many people. However, the US health insurance system can be complex to understand, with many different types of policies and terms that are used. This article aims to explain the basics of health insurance in simple terms so that readers have a solid foundation of knowledge on this important topic.

We will cover key topics like the different types of health insurance plans available, how to choose the right plan for your needs, what is covered by different plans, premiums and deductibles, using insurance to access healthcare services, and more. The goal is to demystify health insurance and build confidence in understanding basic concepts. By the end, you should have a good grasp of how health insurance works here in the US and be able to make informed choices about coverage options.

Let’s start with some history and background on the US healthcare system to provide context.

A Brief History of Health Insurance in the United States

Health insurance has been around in the US in some form since the 1920s, but it was not widely used until much later in the 20th century. Some key events and milestones in the history of US health insurance include:

The Great Depression resulted in rapidly rising healthcare costs that were unaffordable for many. This spurred the growth of private health insurance offered by certain employers beginning in the 1930s.

During World War II, the federal government intervened by putting wage and price controls in place. This included providing tax benefits to employers who offered health insurance to attract and retain workers.

In 1965, Congress passed both Medicare and Medicaid as part of President Lyndon B. Johnson’s “Great Society” initiative. Medicare provides government-run health insurance for seniors and the disabled. Medicaid expanded coverage for low-income families and individuals.

The 1970s saw a rise in employer-sponsored health insurance that became the most common form of coverage by the late 20th century. This was spurred partly by federal tax breaks given to employers for providing insurance benefits.

Major expansions to Medicaid eligibility were passed under presidents Reagan, Bush, Clinton, and Obama with bipartisan support.

The Affordable Care Act was signed in 2010 by President Obama. Also known as “Obamacare,” key provisions included banning denying coverage due to pre-existing conditions, allowing children to stay on parents’ policies until age 26, creating health insurance exchanges, and mandating most Americans obtain coverage.

So in summary, the roots of the US health insurance system lie in employer benefits emerging early in the 20th century, with later government programs like Medicare and Medicaid playing a large role as well. Employment-based coverage has remained the most prevalent type, covering around 155 million Americans.

Types of Health Insurance Plans

There are various types of health insurance plans that Americans can obtain coverage through. The most commonly available options include:

Employer-Sponsored Insurance: This remains the most common source of coverage, with roughly 55% of Americans obtaining insurance through an employer. Premium contributions from employers and employees split the costs. Coverage and benefits are chosen by the employer.

Individual/Non-Group Plans: For those not offered insurance at work or who are self-employed, individual policies can be purchased directly from insurance companies. Plans are available both on and off the ACA Health Insurance Marketplace/Exchange.

Medicare: A federal program providing coverage to Americans aged 65 and older as well as younger people with permanent disabilities. There are different parts and supplemental plans available.

Medicaid: A joint federal-state program for lower-income individuals, families, children, pregnant women, elderly, and disabled. Eligibility rules and covered benefits vary widely by state.

COBRA: Offers former employees the option to continue employer coverage for up to 18 months if certain qualifying events occur like a job loss. Beneficiaries pay the full premium plus a small administrative fee.

TRICARE: Available to active-duty and retired military members and their dependents and families. Premiums, deductibles, and copays are relatively low compared to commercial plans.

Veterans Affairs (VA) Health Benefits: Comprehensive coverage through the VA Healthcare system for all honorably discharged veterans, with some premiums or copays at point of service depending on veteran’s service record and income level.

While these represent major types of health insurance available in the US today, other localized plans like those from state high-risk pools or specific industries may also exist in certain areas. Most Americans obtain coverage through one of the sources above.

Choosing a Health Insurance Plan

With so many options, choosing the right health insurance plan can feel overwhelming. Here are some important factors to consider when selecting coverage:

Your health needs and expected medical expenses – Do you have existing conditions that require certain coverage? How much care do you anticipate needing?

Your budget and ability to pay premiums, deductibles, copays – Be realistic about what costs you can reasonably afford on a monthly/annual basis out of pocket based on your income/expenses.

The doctors and facilities you want access to – Consider plans that include your preferred providers and local hospitals in their provider networks.

Your current or future eligibility for employer/government programs – Make sure to check if plans like Medicare or Medicaid could meet your needs now or in the near future, as those can be more affordable options than individual policies depending on circumstances.

The balance between premium costs and out-of-pocket expenses – Generally, lower premium monthly plans come with higher deductibles and copays, while higher premiums correlate with lower future medical costs. Consider your risk tolerance.

Any special enrollment periods or qualifying life events – Know if you have 60-90 day windows to sign up outside the main annual open enrollment period after certain changes like losing job coverage, moving, marriage, birth or adoption of a child.

Doing thorough research on all available plan options allows choosing coverage tailored to an individual’s or family’s specific situation. Consulting trusted sources of information and asking providers about cost-sharing particulars are advised before finalizing insurance decisions.

What is Covered by Health Insurance?

Once enrolled in a plan, understanding what medical services and care will be covered when needed is critical. Here is an overview of common types of benefits found in most health insurance policies:

Hospital/medical facility costs – Room and board, surgical costs, emergency services, radiology, labs etc. are covered at in-network facilities after deductibles.

Doctor visits, including primary care and specialists – Check if only in-network providers are covered. May have per-visit copays or deductible requirements.

Prescription drugs – Plans have formularies listing covered medications at different tiers indicating copay amounts. Generic/preferred brand drugs typically have lowest patient costs.

Mental health services – Outpatient therapy, counseling, and sometimes inpatient psychiatric coverage like hospitalization. Parity rules mean limits can’t be lower than medical/surgical benefits.

Rehabilitative and habilitative services/devices – Physical, occupational and speech therapy to recover from injury/illness. May also cover things like arm/leg braces after deductibles or with copays.

Preventive care – No cost screening tests, checkups, immunizations and counseling to help prevent future illness per guidelines.

Ambulatory surgical centers – Facilities providing outpatient surgeries without overnight hospital stay are usually covered after plan deductibles for approved procedures.

Urgent care clinics – Drop-in facilities for minor illnesses and injuries treated same-day. May have lower copays than ER trips.

Emergency transportation – Ambulance ride costs during medical emergency are covered in most cases.

Home healthcare, hospice care, skilled nursing facilities – May require preapproval depending on plan. Subject to limitations/maximum number of covered days.

Plans have their own rules about deductibles, copays, coverage limitations, approval processes for costly/experimental care. It’s important to review plan documents to fully understand what a specific policy does and doesn’t pay for.

Health Insurance Terminology to Know

Along with learning about different insurance types and coverage details, familiarizing yourself with common insurance-related terms is also important:

Premium – The monthly or annual amount paid by you (and potentially your employer) to maintain health insurance coverage.

Coinsurance – The share of costs you pay for covered healthcare services like ER visits or hospital stays as a percent (e.g. 20%) after meeting the deductible.

Copay – A fixed dollar amount you pay for medical services or prescriptions, such as a $25 copay for doctor’s office visits.

Deductible – The amount you owe for covered healthcare services before your insurance plan starts to pay its share. Plans may have separate deductibles for medical services vs prescriptions.

Maximum out-of-pocket (MOOP) limit – The total amount you pay each year before the insurance plan pays 100% for covered essential healthcare services. This provides financial protection.

Network – The collection of providers, hospitals, facilities and suppliers contracted by your insurance company to provide covered services to members.

Out-of-network – Healthcare providers, hospitals, and services not contracted with your insurance. Costs are usually not covered or have much higher patient financial responsibility if used.

Primary care physician (PCP) – Your regular or general doctor who provides checkups, screenings and helps coordinate care. Some plans require you to designate a PCP.