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.

  • Health insurance is now mandatory with the passing of ACA. This may seem burdensome to many people, but there is good news. There are more health insurance options to help you manage this part of your life.

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.

  • What is often most confusing about health insurance is the vocabulary. Like any industry there is special terms and definitions. Knowing these terms will help you make a good decision about your own health insurance. For example, “out of pocket” is the lump sum term that includes all the other terms such as co-pay, coinsurance, adaptable, etc.
  • Learn these terms and you will make better decisions. For example, co-pay and coinsurance can be confusing, partly because they sound so similar. Co-pay is the regular amount that you pay when you go for medical services. Coinsurance is the percentage that you owe versus the percentage that the insurance company owes to the medical provider. Coinsurance is a big factor in the difference between different medical plans.

HealthCare.gov Marketplace

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
  • Inside of healthcare.gov there are basically four plans you can choose. The big difference between all these plans is the amount of coverage and how high your coinsurance will be. Remember coinsurance is the percentage that you owe versus the percentage the insurance company owes. The cheaper the plan the bigger your coinsurance percentage will be.

Private Insurance

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.
  • In this section on private insurers, these are not really insurance plans. These are the different methods insurance companies use to manage healthcare. Often an insurance company will offer more than one of these to choose from. In fact, they will sometimes combine these methods into one plan.

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

  1. 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.
  2. 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.
  3. Find ways to save – By providing more information about your income, expenses, and dependents, you may qualify for special assistance from the federal government.
  4. Choose a category – Pick from the bronze, silver, gold, or platinum categories (outlined above).
  5. 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.
  6. 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.
  • There are two ways basic ways to buy health insurance. You can go through healthcare.gov, or through a private broker. Healthcare.gov will only give you the information about the four ACA plans. Brokers will have access to private insurance company plans. The benefit of using a broker is it they can offer not only private insurance, but can often access the ACA plans and compare the two.

Getting a Private Insurance Plan

  1. 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.
  2. 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.
  3. 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.
  • The big piece to remember here is that the lower the premium the greater you’re out of pocket cost is. The more expensive the premium the lower your out-of-pocket cost will be.

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.

  • Insurance companies use different factors to determine your rate or premium. This is why it’s almost impossible for you to compare notes with friends and family members about what their health insurance cost them. One factor that nobody thinks about is where you live. Health insurance is managed by individual states. The rate structures between states could be dramatically different from the neighboring states.

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.
  • It may be confusing but the government does not allow health insurance companies to look at medical history term and rate structures. This is a big benefit if you come with pre-existing medical issues.

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.
  • These list are very helpful in understanding what health insurance will cover. These coverages are actually mandated by the government. The list of items they do not cover is helpful as well. Just because something is on the “do not cover” list doesn’t mean insurance companies don’t offer it as part of their plan. Many will offer these coverages. It is often what distinguishes them from other insurance companies by giving these extra benefits.

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
  • Hospitalization
  • 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
  • These list are very helpful in understanding what health insurance will cover. These coverages are actually mandated by the government. The list of items they do not cover is helpful as well. Just because something is on the “do not cover” list doesn’t mean insurance companies don’t offer it as part of their plan. Many will offer these coverages. It is often what distinguishes them from other insurance companies by giving these extra benefits.

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.

  • Medicare and Medicaid or often confused products. Both are federal government health coverages. Medicare is for individuals over 65. Medicaid is reserved for those with low income or on government assistance.

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!

  • One of the easiest ways to untangle all the confusion about health insurance is to use a broker that has multiple carriers and access to the ACA program. They are able to compare and provide you with multiple options for your healthcare and health insurance needs.

May 24, 2019

Author

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.

Leave a Reply

Your email address will not be published. Required fields are marked *

DMCA.com Protection Status