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How Health Insurance Works in the USA?

Health care in the U.S. can be very costly. Most of us could not afford to pay such large sums if we get sick, especially since we do not know when we might become ill or injured or how much care we might need. Health insurance provides a way to reduce such costs to more reasonable amounts.

The way health insurance works is that the consumer (you) pays an up-front premium to a health insurance company and that payment allows you to share “risk” with lots of other persons (enrollees) who are making similar payments. Because most individuals are healthy most of the time, the premium dollars paid to the insurance carrier can be used to cover the expenses of the (relatively) a small number of enrollees who get sick or are injured.

As you can imagine, insurance companies have studied risk extensively, and they aim to collect enough premiums to cover the medical costs of the enrollees. There are many different types of health insurance plans in the United States and many different rules and arrangements concerning care.

Following are three crucial questions you should ask when deciding on the best health insurance:

1: Where Can I Receive Healthcare?

One way that health insurance plans control their costs is to impact access to providers. Providers consist of physicians, hospitals, laboratories, pharmacies, and other entities. Many insurance companies contract with a specified network of providers that have agreed to supply healthcare services to the insured at more favorable pricing.

If a provider is not in a plan’s network, the insurance company may not pay for the service(s) offered or pay a smaller portion than it would for in-network care. This means the enrollee who goes outside the network for care may be obligated to pay a much higher share of the cost. This is an important concept to understand, particularly if you are not originally from the local Stanford area.

2: What Does the Health Insurance Plan Cover?

One of the things healthcare reform has done in the United States (under the Affordable Care Act) is to introduce more standardization to insurance plan benefits. Before such standardization, the benefits offered differed drastically from plan to plan. For instance, some plans covered prescriptions; others did not. Now, plans in the United States are required to offer several “essential health benefits” which include

• Rehabilitation services
• Preventive services (e.g., some immunizations) and management of chronic diseases
• Prescription drugs
• Pediatric services, as well as dental and vision care
• Outpatient care (physicians and other services you receive outside of a hospital)
• Mental health and substance abuse treatment
• Maternity and newborn care
• Laboratory tests
• Hospitalization
• Emergency services

3: What is the Cost of Health Insurance

Understanding what insurance coverage costs is quite complicated. In our overview, we talked about paying a premium to enroll in health insurance. This is an up-front cost that is transparent to you.

Unfortunately, for most health insurance plans, this is not the only cost associated with the care you receive. There is also a cost when you access healthcare. Such cost is captured as deductibles, coinsurance, or copay and represents the share you pay out of your pocket when you receive healthcare services. As a general rule of thumb, the more you pay in premium upfront, the less you will pay when you access healthcare services. The less you pay in premium, the more you will pay when you access healthcare.

Important Health Insurance Terms and Concepts:

• Out-of-pocket expenses: The terms “out-of-pocket cost” or “cost-sharing” refers to the portion of your medical costs you are responsible for paying when you receive health care. The monthly premium you pay for care is separate from these expenses.
• Annual deductible: The annual deductible is the amount you pay every plan year before the insurance company begins paying its share of the costs.
• Copayment (or ‘Copay’): The copay is a fixed, upfront amount you pay every time you receive care when that care is subject to a copay. Plans that do not have copays usually use other methods of cost-sharing.
• Coinsurance: Coinsurance is the rate of the cost of your medical care. Health insurance plans with higher premiums usually have less coinsurance.

Call for your Quote T

Stop waiting around! The right insurance provider is out there and we’re going to make sure you’re covered for the foreseeable future. Accidents can happen any time whether it’s day, night, workdays, or holidays. Insurance is the best way to prepare for the unpredictable, and a great way to secure your peace of mind. Give us a call today or fill out the form for a quote – you’ll be glad you did!

References and Resources

• 10 Essential Health Benefits
• Out-of-Pocket Expenses