Complete Guide to Health Insurance
Health Insurance 101
Since the introduction of the Affordable Care Act, millions of Americans have gained access to government-subsidized healthcare plans. While the future of the American healthcare system remains unclear, the Affordable Care Act (sometimes referred to as “Obamacare”) is here to stay for the time being. Participation in the government’s healthcare marketplace is not obligatory, but there are incentives for signing up, as well as certain disincensitivies for opting out.
Health insurance is vitally important, but it is also notoriously complex in the United States. Many people are unaware of how deductibles work, what plans do or do not cover, as well as the minimum requirements mandated by federal and state governments. So, to get a better understanding of the options available to you, let’s breakdown the basics of U.S. health insurance.
The Basics of Health Insurance
In essence, health insurance is simply an agreement between an insurance provider and an individual in which the individual agrees to pay a certain amount toward their own medical costs. In exchange, the insurance provider agrees to pay a larger portion of any medical costs in the future. However, there are different health insurance types that offer varying levels of coverage. But first, let’s define a few important terms that you will encounter when shopping for a health insurance plan:
- Co-Pay – Short for “copayment,” this refers to a set amount of money that you are required to pay every time you go to the doctor.
- Deductible – Your insurance deductible is the amount of money you must pay towards medical costs per year before your insurance provider begins contributing to your medical bills.
- Premium – Your insurance premium is the set amount you pay every month to have health insurance.
- Coinsurance – This term is generally shown as a ratio that represents the percentage of total healthcare costs you and your healthcare provider contribute to your medical bills. For example, if your coinsurance is 20%, this means that, once you have paid the entirety of your deductible, your insurance provider will pay 80% of the remaining costs for the year, and you will pay 20% (this could also be represented as 80/20).
- Out-of-Pocket Expenses – This is the amount that an insured person will need to pay toward medical expenses without the assistance of their healthcare provider. Out-of-pocket expenses can include coinsurance, deductibles, and copayments. Some insurance plans have maximum limits on how much you will have to pay out-of-pocket every year.
Next, we’ll look at what is offered through the Healthcare.gov marketplace versus private insurance.
On the state marketplace, there are 4 levels/categories: bronze, silver, gold, and platinum. Generally speaking, these categories range from basic to comprehensive coverage:
- Bronze – The bronze category is the most basic coverage you can get through the healthcare marketplace. It offers the lowest monthly premiums and the highest deductibles. This category is generally best for young, healthy adults who do not anticipate steep medical bills, but still want coverage in case of an emergency. This kind of health insurance is sometimes referred to as a “catastrophic healthcare plan,” because it is meant as a safety net in the event of a medical emergency. Coinsurance: 60/40
- Silver – The silver category is the next step up from bronze, and offers moderately-priced premiums and deductibles. The is a more standard level of care that is best for those who want a better coverage plan, but don’t want to pay a high monthly premium. Coinsurance: 70/30
- Gold – The gold category has high monthly premiums with low annual deductibles. A gold plan is a great value for people who anticipate using their health insurance frequently. Coinsurance: 80/20
- Platinum – The platinum category has the highest monthly premiums and lowest deductibles. This plan provides the best possible coverage for those willing to pay more each month. Coinsurance: 90/10
If you prefer to to buy health insurance outside of the state marketplace, you can purchase a plan directly from an insurance provider or local insurance broker. In either case, there a few different types of plans available. These are the 5 most common insurance types:
- Health Maintenance Organization (HMO) – This insurance type resembles those offered through the Healthcare.gov marketplace, as it requires monthly premiums. HMOs offer a wide range of benefits and personalized premium/deductible packages.
- Participating Provider Option (PPO) – PPOs are similar to HMOs, but are generally more flexible regarding where you can acquire medical care. For example, a PPO plan does not require you to choose a primary care physician like an HMO does.
- Point-of-Service (POS) – A POS plan combines features of HMOs and PPOs. It is a form of managed care that offers lower costs, but limited choices.
- Fee-For-Service Plans – These plans offer reimbursement on a case-by-case basis. In other words, every time you go to the doctor or make use of a medical service, your insurance provider will be billed. These plans generally have high premiums and deductibles.
- Health Savings Account (HSA) – A health savings account allows you to set aside money in a tax-free account for current and future medical costs.
How To Acquire a Health Insurance Plan
The process for acquiring health insurance will depend on where you go to purchase it. The Healthcare.gov marketplace makes it relatively simple to sign up, but you are only eligible to enroll during a certain period of the year. If you miss the deadline, you may need to purchase a private insurance plan. First, let’s look at the steps you will need to follow to purchase a healthcare plan on the state marketplace.
Getting a Plan on HealthCare.gov
- Know the dates – Make sure you know the enrollment dates for the current calendar year. If you miss the enrollment period due to a major life event, you may be eligible to sign up during a special enrollment period.
- Make an account – The easiest way to enroll in a government-sponsored healthcare plan is through the Healthcare.gov website. This will require you to make an account by providing the state in which you live, your name, and your email address.
- Find ways to save – By providing more information about your income, expenses, and dependents, you may qualify for special assistance from the federal government.
- Choose a category – Pick from the bronze, silver, gold, or platinum categories (outlined above).
- Choose an individual plan – You will be presented with several plans from different providers based on the category that you choose. Select one that best fits your needs and budget.
- Finalize your plan – The website will assist you through the process. Then, you will simply need to wait on your health insurance card to arrive in the mail.
Getting a Private Insurance Plan
- Compare different providers – The state marketplace gives you a breakdown of different plans available to you, but when shopping for a private insurance plan outside the marketplace, you will need to do the research yourself. If you feel overwhelmed by the prospect of comparing different insurance providers, you can also go through an insurance broker, who can do much of the heavy lifting for you.
- Choose a plan – Each provider offers plans that cater to different needs. You will need to consider what kind of plan you want, your anticipated healthcare needs, and your budget.
- Finalize your plan – Once you choose your plan and make your first payment, you will be able to use your insurance plan to help with your medical bills.
Calculating Health Insurance Copayments, Premiums, and Deductibles
Even if you understand what these terms mean, it is not always clear how insurance providers decide on the amounts you must pay for copayments, premiums, and deductibles. Generally, copayments and deductibles have an inverse correlation with premiums. In other words:
- High premiums = low copayments and/or deductibles
- Low premiums = high copayments and/or deductibles
This means that premiums play an extremely important role in determining your healthcare costs. So, how do health insurance providers determine your premiums? There are certain factors that insurance providers can use to calculate your premiums, and certain factors that they are forbidden to use in their calculations.
Factors That CAN Affect Your Premiums
Health insurance providers are allowed to look at these 5 factors when calculating your insurance premiums:
- Age – Your age is extremely important to health insurance providers, because it can have a huge impact on your healthcare costs in the short-term. Younger people tend to have much fewer ailments, while older people seek treatment much more often. It is estimated that older individuals can get premiums that are three times higher than younger individuals.
- Location – Each state has different health insurance regulations. Additionally, people in some regions may have access to a large number of health insurance providers (which can help drive down costs), while people in other regions might have few to choose from. The cost of living in your area can also affect premiums.
- Tobacco use – Typically, habitual tobacco users incur greater medical bills than those who don’t use some form of tobacco. As a result, insurers can charge as much as 50% more if you smoke or use chewing tobacco.
- Number of people – Some people sign up for health insurance as individuals, while others enroll in so called “family plans” that cover two or more people, including spouses and dependents. Naturally, insurers charge higher premiums for plans that cover more people.
- Plan type/category – If you enroll the the Healthcare.gov marketplace, your premiums will also be affected by the category that you choose: Bronze, Silver, Gold, or Platinum.
Factors That CANNOT Affect Your Premiums
By law, there are also certain factors that insurers are not allowed to take into account when setting premiums:
- Health – If you are currently sick or suffering from an illness, this cannot affect your premiums.
- Medical History – Insurers are not allowed to set your premiums based on your medical history, no matter what kind of ailments or treatments you may have had in the past.
- Gender – Men and women have different medical needs, but insurers are not allowed to use this to set premiums.
What Health Insurance Does and Does Not Cover
According to the Affordable Care Act, there are 10 essential benefits that every health insurance plan must cover:
- Ambulatory patient services
- Emergency health services
- Pregnancy, maternity, and newborn care
- Mental health and substance use disorder services
- Prescription drugs
- Rehabilitation services/devices
- Laboratory services
- Preventative services and chronic disease management
- Pediatric services
However, there are many things that health insurance plans are NOT required to cover:
- Vaccines for international travel
- Alternative therapies (like acupuncture, chiropractic services, etc.)
- Cosmetic surgery
- Nursing home care
- Dental, vision, or hearing care
Medicare and Medicaid
It is also important to know about the government programs that assist certain individuals with their healthcare costs. The two most common programs are Medicare and Medicaid.
Medicare is a program that assists adults over the age of 65 and young people with certain disabilities. Medicare provides 3 distinct service programs:
- Medicare Part A – This service helps pay for inpatient hospital care, nursing facility care, hospice stays, and certain home health care.
- Medicare Part B – Part B covers general health services, like doctor’s visits, outpatient care, medical supplies, and preventative services.
- Medicare Part D – Finally, Medicare Part D covers prescription medications.
To learn more about Medicare programs and what they cover, consult the state Medicare website.
Medicaid is a program that applies to a wider range of people, including low-income individuals, pregnant women, the elderly, and people with disabilities. In essence, this program helps those who lack the resources for traditional health care or insurance to cover the costs of medical treatment. You can learn more about Medicaid right here.
Obtaining Health Insurance
Are you or your family in need of health coverage? Whether you want to look for a plan through the federal government’s marketplace, buy a private insurance plan, or check your eligibility for Medicare and/or Medicaid, Healthcare.gov can provide a lot of important information to help you get the coverage you need. You can also find additional information on enrollment periods, costs, and eligibility right here!
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May 24, 2019
Matthew is an experianced FiGuides writer and researcher. He holds B.A. in Philosophy from the University of Georgia and enjoys taking a deep dive on personal finace projects.