Health Insurance
Introduction
Health insurance is a type of insurance coverage that pays for medical and surgical expenses incurred by the insured. Health insurance can reimburse the insured for expenses incurred from illness or injury, or pay the care provider directly. It is often included in employer benefit packages as a means of enticing quality employees. The cost of health insurance premiums is deductible to the payer, and the benefits received are tax-free.
History
The concept of health insurance was proposed in 1694 by Hugh the Elder Chamberlen from the Peter Chamberlen family. In the late 19th century, "accident insurance" began to be available, which operated much like modern disability insurance. This payment model continued until the start of the 20th century in some jurisdictions (like California), where all laws regulating health insurance actually referred to disability insurance.
Types of Health Insurance
There are essentially two types of health insurance: Fee-for-Service (Indemnity) plans and Managed Care plans like Health Maintenance Organizations (HMOs), Preferred Provider Organizations (PPOs), and Point-of-Service (POS) plans.
Fee-for-Service (Indemnity) Plans
Under a fee-for-service plan, you can see whatever doctors you want and the insurance company is billed for each service provided. These plans are often more expensive but offer the most flexibility in choosing where and from whom you receive your health care services.
Health Maintenance Organizations (HMOs)
HMOs are a type of health insurance plan that usually limits coverage to care from doctors who work for or contract with the HMO. It generally won't cover out-of-network care except in an emergency. An HMO may require you to live or work in its service area to be eligible for coverage.
Preferred Provider Organizations (PPOs)
PPOs are a type of health insurance plan that contracts with medical providers, such as hospitals and doctors, to create a network of participating providers. You pay less if you use providers that belong to the plan’s network. You can use doctors, hospitals, and providers outside of the network for an additional cost.
Point-of-Service (POS) Plans
POS plans combine features of HMOs and PPOs. You are required to designate an in-network physician to be your primary care provider, but you can see out-of-network doctors if your primary care provider refers you to them.
Coverage
Health insurance can cover a variety of costs. The most common include preventive and wellness services, prescription drugs, emergency services, outpatient care, and hospitalization.
Preventive and Wellness Services
Preventive care, such as annual check-ups and screenings, are often covered under most healthcare plans. This also includes wellness visits, where your doctor will assess your overall health and help you make a plan to improve or maintain it.
Prescription Drugs
Many health insurance plans include coverage for prescription drugs. The specifics of what is covered will vary from plan to plan, but in general, insurance will cover a significant portion of the cost of your prescription drugs.
Emergency Services
In the event of an emergency, health insurance will cover a portion of the costs of emergency room visits. This can also include ambulance fees and in some cases, air ambulance services.
Outpatient Care
Outpatient care, or care that does not require a hospital stay, is also covered under most health insurance plans. This can include surgeries, home health care, and even some forms of mental health care.
Hospitalization
If you need to be hospitalized, health insurance will cover a portion of the cost. This can include surgeries, overnight stays, and medication.
Costs
The cost of health insurance can be broken down into premiums, deductibles, copayments, and coinsurance.
Premiums
A premium is the amount of money charged by your insurance company for the plan you've chosen. It is usually paid on a monthly basis, but can be billed in other intervals.
Deductibles
A deductible is the amount you have to pay for covered services before your insurance starts to pay. After your deductible is met, you share the cost with your insurance company. This sharing of costs is called coinsurance.
Copayments
A copayment is a fixed amount you pay for a covered service, usually when you receive the service. The amount can vary by the type of service.
Coinsurance
Coinsurance is your share of the costs of a covered service, calculated as a percent of the allowed amount for the service. You pay coinsurance plus any deductibles you owe.
Conclusion
Health insurance is a vital part of financial planning. With the rising cost of healthcare, having health insurance can protect you from the high costs associated with serious illnesses or accidents.