Health Insurance Basics
Premiums, co-pays, deductibles, in-network, out-of-network — welcome to the world of health insurance. And you thought advanced calculus was confusing!
What Exactly Is Health Insurance?
Health insurance is a plan that people buy into in return for coverage on all kinds of medical care. Most plans cover doctors' appointments, emergency room visits, hospital stays, and medications.
The idea behind insurance is simple: Medical care can be so expensive that most people can't pay for it entirely out of their own pockets. But if a group of people gets together, and they each agree to pay a fixed amount every month (whether they need medical care at that time or not), the risk is spread out over the whole group. Each person is protected from high health care costs because the burden is shared by many.
Do I Really Need It?
You're young, you spend more time in the gym than an Olympic athlete, you rarely get anything worse than a cold, and your great-grandparents are still kicking at 99. Why bother spending money on insurance? Aren't the odds pretty good that you'll never get seriously sick?
We certainly hope so. But every day, thousands of perfectly healthy people break bones, need stitches, get into car accidents, find out they have illnesses, or are told they need surgery for one condition or another.
You may never be one of them. But what if you are? Medical bills from even a minor car accident can wreak havoc on your finances. A major illness can wipe out your family's savings as well. Insurance may be expensive, but not having it might cost way more.
OK, So Maybe I Do Need It. How Can I Get It?
There are many different ways to buy health insurance, and the costs and benefits vary widely for each one. You'll need to see which options are available to you, given your age and employment status, and also which one best meets your needs. You'll probably need to wade through a lot of health care buzzwords, too.
Here are some of the ways you might be able to get insurance:
- Parents' plan. In the United States, most kids can stay on their parents' health insurance plan until age 26. This is true even if you're married, live somewhere else, and have a job — with one exception: Until 2014, some insurance plans can make you take your employer's benefits if you are offered them.
- COBRA. COBRA (short for the Consolidated Omnibus Budget Reconciliation Act of 1985) lets you purchase the health plan your parents currently have for you. That lets you continue getting insurance coverage when you would otherwise lose it. COBRA is time limited, though. You can only have it for a certain length of time.
- Short-term policy. Many insurance companies let you buy short-term, or "student," insurance policies that help you bridge the gap between school and your first job. These plans are similar to COBRA, though they're usually more basic and affordable.
- Employer plans. This is the way most people in the United States get their health insurance. It is also usually the least expensive option, since employers often help pay for part of the insurance. Some employers will offer you health insurance coverage on your first day of work; others may make you work a period of time first (30, 60, or 90 days) before you become eligible.
- Individual policy. Buying comprehensive health insurance on your own is probably the most expensive option, since you're not sharing the risk with a larger group of people (such as other students, employees, etc.). Also, these plans tend to require you to undergo medical tests in order to qualify. You may be turned down or have to pay more if you're considered a higher risk because of a health condition or an unhealthy behavior like smoking.
- The Health Insurance Marketplace. This option for buying health insurance will go live in 2014. It allows people who need to buy health insurance on their own to compare their options and choose the best insurance to meet their needs. Some states call it a Health Insurance Exchange.
- Subsidized state program. If you're under 19, uninsured, and your family's income is below a certain level, you might be able to get state help through a program called SCHIP (State Children's Health Insurance Program). Benefits vary from state to state so you'll need to check with your state's Department of Health and Human Services.
- Medicaid. Medicaid is sometimes also called "medical assistance." It's another type of government-funded health insurance that's available only to certain people, like low-income adults and people with disabilities. Check with your state's Department of Health and Human Services to find out if you are eligible for Medicaid.
What If I Have a Health Problem?
If you've been living with an illness, such as asthma or diabetes, insurance companies call that a "pre-existing condition." In the past, people who tried to buy health insurance after being diagnosed with a pre-existing condition often found that prices were higher or the insurance company wouldn't cover treatment for that condition for a set period of time. Now, no insurance company is allowed to deny coverage to a child under 19 years old because of a pre-existing condition. In 2014, that protection extends to people of all ages.
If you have a pre-existing condition, have been denied insurance because of it, and have been uninsured for 6 months or more, you are eligible for the Pre-Existing Condition Insurance Plan through your state. Find out how to apply in your state by visiting PCIP.gov.
What Type of Insurance Do I Need?
Each insurance plan is different when it comes to what's covered, what's not, and how much things cost. Figuring out which one is right for you is a bit of a balancing act: You want to get the most benefits at the least cost.
Start by looking at all the elements of the plan and not just the price tag. For example, a plan with a low monthly premium isn't necessarily the cheapest — your co-pay might be very high or you might pay way more for your prescriptions. So if you see a doctor a lot or take prescription medications regularly, a more expensive plan that covers a higher percentage of the cost to see a doc or get a prescription may actually turn out to be cheaper.
You'll also have to look at whether your plan covers things that are important to you. For example, many plans don't cover things like dental or vision care, counseling sessions, or alternative therapies like chiropractic or acupuncture.
The three major plans you'll likely have to choose from are: indemnity plans, managed care plans, or consumer-driven health plans.
With this kind of plan you can see any doctor you want any time you want. You pay the doctor directly and then send your claim to your insurance company. The company pays you back for part of the total cost. (For example, if your doctor charged $100, you might get 80%, or $80, back.)
Indemnity plans (also called fee-for-service or reimbursement plans) generally don't pay for preventive care, like annual physical exams. Because they offer you the most choice, the monthly premium is usually higher than other types of health plans.
Managed Care Plans
When you get insurance through an employer, it is often through a managed care plan. With managed care, a health insurance company negotiates a contract with certain health care providers, hospitals, and labs to provide care for its members at a lower cost.
The four basic types of managed care plans are:
- HMO (Health Maintenance Organization). When you join an HMO, you choose a primary care doctor. This doctor coordinates all your medical care, from annual physicals to hospitalizations. Although the co-pay for these services is usually fairly low, the tradeoff is that you can only use doctors and hospitals who are approved by your plan. Also you can't see any kind of specialist without a written referral.
- PPO (Preferred Provider Organization). A PPO is like an HMO, only with more flexibility. Instead of choosing a primary care doctor, you can see any doctor you want. However, if you choose a doctor who participates in your plan, you will pay less.
- POS (Point of Service). With a POS plan, you generally choose an in-network doctor for most of your care, but you may go outside the network if you need to see a specialist. If you do go out of network, you may have to pay more.
- EPO (Exclusive Provider Organization). An EPO is like a PPO, only the network of participating doctors is smaller.
Consumer-Driven Health Plan (CDHP)
This type of plan is fairly new on the health care scene. It lets you set aside a certain amount of money in a special health insurance savings account. You are in charge of how you use this money to cover your health care costs. However, the deductible you have to reach is usually higher than in the other types of plans.
It may seem odd buying something that you might never need. So consider health insurance an investment in your peace of mind. Since peace of mind means less stress, you'll start enjoying health rewards right away!
Reviewed by: Cory Ellen Nourie, MSS, MLSP
Date reviewed: February 2013
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