Health insurance is a legal entitlement to payment or reimbursement for your medical care, typically provided by an employer’s group plan, an individual or family policy purchased on the private market, or a government-sponsored program such as Medicare, Medicaid, and the Children’s Health Insurance Program. It covers a wide range of costs that you would otherwise be responsible for, such as deductibles, copays, and coinsurance (but not premiums).
Medical insurance can also cover preventive services, including annual physical exams, immunizations, and screenings for cancer and other conditions. Without coverage, these services are often cost prohibitive and individuals are more likely to avoid them or forgo them altogether due to the fear of high costs, especially if they have a chronic condition that requires ongoing treatment. This can lead to serious health consequences and even be life threatening.
A medical insurance plan is a contract between an insurer and an insured, where the latter pays a monthly fee in exchange for the insurer’s promise to pay for certain types of medical care that are incurred during the term of the contract. This contract may be annual or monthly in the case of private insurance, or it can be as long as your lifetime in the case of national health plans.
When selecting a health insurance plan, it is important to consider the full scope of coverage. While some plans appear cheaper on the surface, they may not offer comprehensive coverage. The best way to compare is by looking at the total price of a health insurance plan, which includes both the monthly premium and the cost of any out-of-pocket expenses.
The annual out-of-pocket maximum is the most amount that you will be required to pay for care in a year. This includes deductibles, copays, and even coinsurance (but not premiums). Typically, once you reach this limit, the insurance company will begin to pick up 100% of your covered costs for the rest of the year. Most people do not ever reach this limit, but it is something to keep in mind when choosing a plan.
Indemnity plans are the most traditional type of medical insurance, and are usually more expensive than other types of insurance. These plans require that you choose a primary care physician and will only cover treatment from providers who have been approved by your doctor or are part of an insurance network.
Managed care is a type of health insurance that involves the insurance provider negotiating contracts with doctors, hospitals, and other providers to provide care for members at a discounted rate. Managed care is typically more affordable than indemnity plans, but it limits your choices for receiving care. Managed care options include Health Maintenance Organization (HMO) and Preferred Provider Organization (PPO) plans. In an HMO, you must select a primary care physician who will coordinate all of your care and will refer you to specialists if necessary. In a PPO, you have more freedom to choose your own care but will not be reimbursed as well for out-of-network services.