Health Insurance

Health insurance is a contract or plan that pays some or all of the cost of medical care for the people it covers, in exchange for premiums paid by them, an employer or a government program. Federal law uses the phrase "health insurance coverage," which it defines as "benefits consisting of medical care (provided directly, through insurance or reimbursement, or otherwise ...) under any hospital or medical service policy or certificate, hospital or medical service plan contract, or health maintenance organization contract offered by a health insurance issuer."

In everyday use the term covers more than that definition does. People call any medical coverage health insurance, including Medicare, Medicaid and an employer plan that pays claims from the employer's own funds. The more specific pages on this site explain each kind of coverage, how its costs work, and what it does and does not pay for.

Where it comes from. Each route has its own rules and its own page:

• Through work: a group health plan sponsored by an employer or union, which may be insured or self-funded, and COBRA continuation coverage after leaving.
• On your own: individual market coverage, bought through the Health Insurance Marketplace, where the premium tax credit and cost-sharing reductions are available, or directly from an insurer.
• From government programs: Medicare at 65 or on disability, Medicaid and the Children's Health Insurance Program for those who qualify, and TRICARE for the military.
• In special situations: early retiree health insurance before Medicare, and international health insurance for people living abroad.

What it costs. The premium buys the coverage; the cost-sharing decides how much of each bill the insured still pays. The deductible comes first, then copays or coinsurance, until the out-of-pocket maximum stops the insured's share for the year. The plan type, such as an HMO, PPO or EPO, decides which doctors count as in network.

What falls short of comprehensive medical coverage. Federal law carves out "excepted benefits," such as stand-alone dental and vision, specified-disease coverage and hospital indemnity insurance, from most of the market rules. Short-term health insurance is excluded from the definition of individual health insurance coverage, so the Affordable Care Act's protections do not reach it. A health care sharing ministry is not insurance at all. Each can be useful, and none should be mistaken for a plan that covers pre-existing conditions and caps a year's out-of-pocket costs.

Insurance and self-funding. The statute defines a health insurance issuer as a state-licensed insurer and says the term "does not include a group health plan." So when an employer pays claims itself, the coverage is a group health plan but not health insurance coverage in the legal sense, and state insurance law generally does not reach it. To the employee it looks the same; the difference shows up when a claim is disputed.

1. Choose a plan at work, in the Marketplace, or through Medicare or Medicaid, weighing the premium against the deductible, network and out-of-pocket maximum.
2. Pay the premium, directly, through payroll or with a premium tax credit.
3. Use care. In-network providers bill the plan, which applies its allowed amount and the cost-sharing rules, and sends an explanation of benefits.
4. Pay your share until the out-of-pocket maximum for the year is reached; after that, the plan pays covered in-network care in full.

An example of how a bill is split: Alana's plan has a $1,500 deductible, 20% coinsurance and a $4,000 out-of-pocket maximum. A covered $6,000 in-network surgery costs her $1,500 + 20% x ($6,000 - $1,500) = $1,500 + $900 = $2,400, and the plan pays $3,600. A second $10,000 bill later that year would cost her at most $4,000 - $2,400 = $1,600 more, because the out-of-pocket maximum caps her share.

Pros

• The out-of-pocket maximum caps what a household pays for covered in-network care in a year.
• In network, cost-sharing applies to the plan's negotiated allowed amount rather than the provider's full charge.
• Plans bound by the Affordable Care Act's rules cannot exclude pre-existing conditions.

Cons

• Premiums are paid whether or not care is used, and a high deductible can leave most routine bills with the household.
• Networks limit choice, and out-of-network care can cost far more.
• Some products marketed as health coverage pay fixed amounts or exclude prior conditions, and the difference is easy to miss when buying.