What Is Medical Insurance?

Medical insurance is a form of health care coverage that reimburses for some or all of the costs of medical and surgical expenses incurred by an insured individual, family or group. The terms of a medical insurance policy vary but they all operate on the same principle: an individual pays an up front premium and in return, the insurer agrees to pay for all or a portion of the cost of certain health care services, up to a specific annual limit. In some cases, the policies also provide for preventative health care services.

A common feature of modern medical insurance is the use of networks. These are groups of approved physicians, hospitals and other providers that the insurer negotiates discounts with. In exchange for a lower rate, the provider agrees to work with that particular insurance company and its enrollees. In the United States, Preferred Provider Organizations (PPOs) and Health Maintenance Organizations (HMOs) are examples of these types of medical insurance plans.

Deductibles and coinsurance are also important parts of most medical insurance policies. Deductibles are the amounts that an individual must pay annually for health care services before the insurance plan starts to cover any expenses. A deductible may be applied to individual health insurance policies, but in most cases it is a common feature of family or group health plans as well.

Once the deductible has been met, the health insurance plan covers some or all of the remaining health care expenses. This is usually based on a percentage of the total charges. A coinsurance clause is a common feature of many modern health insurance plans.

In some cases, the health insurance company will require preauthorization before a specific service or prescription medication is covered. This is a way for the insurer to ensure that the service is needed and that it meets criteria such as medical necessity. In the United States, preapproval is usually required for treatments like X-rays and physical exams, but it is not always a requirement for all services.

The Affordable Care Act (Obamacare) requires that all nongrandfathered, individual and small-group major medical insurance plans include coverage for the essential health benefits. In addition, the ACA prohibits health insurance companies from imposing lifetime or annual benefit maximums on these plans.

While some people have different ideas about the best type of health care system, most recognize the importance of having financial protection against high medical costs. This can be in the form of private medical insurance, such as those offered by GetCoveredNYC, or in the form of government-sponsored programs like Medicare, Medicaid and the Children’s Health Insurance Program. In all of these systems, the basic principles are the same: advance payment of premiums or taxes, pooling of funds and eligibility based on contributions or employment. The most fundamental difference is that government sponsored systems tend to be more highly regulated and more structured than private health insurance. These systems are also often more heavily funded with taxpayer dollars than private health insurance.