Health insurance is a type of insurance that covers medical expenses. Typically, a premium is paid in exchange for assistance with out-of-pocket costs. How health insurance works depends largely on your insurance type, be it employer coverage, public coverage like Medicaid or Medicare, or private coverage with or without cost assistance obtained on the Health Insurance Marketplace.
Types of Health Insurance
There are two main types of health insurance. Insurance types offered by private insurers use a private fund and are private. Insurance types offered by public insurers (the federal or state governments) use a public fund are public. A third sub-type is subsidized health insurance, which is private insurance that uses a private fund and is subsidized by tax dollars.
Private Health Insurance
Private health insurance — health insurance offered through an employer, purchased either inside or outside the Health Insurance Marketplace. Being subsidized in some way or qualifying for tax benefits does not make an insurance type public. Less talked about forms of private coverage include self-funded group coverage and Accountable Care Organizations.
- Health Insurance Marketplace
- Employer Group Plans (Large and Small)
- Healthcare arrangements
- Other Group Plans and Health Sharing Ministries
Public Health Insurance
Public Health Insurance – Medicaid, Medicare, TRICARE, VA, etc. Any insurance type funded by state or federal government. Despite these being public types, policy holders may still be responsible for their share of costs.
- Medicaid and CHIP
- Original Medicare (Part A and Part B)
- TRICARE and VA
Subsidized Private Health Insurance
Subsidized Private Insurance – insurance sold through ObamaCare’s Marketplaces and supplemental Medicare coverage are types of private coverage, but they are both subsidized by the Federal Government in some way.
- The Health Insurance Marketplace – created under the Affordable Care Act (ObamaCare) – is a private fund subsidized by tax dollars.
- Supplemental Medicare is sold by private insurers and subsidized by Medicare (Part C, Part D, and Medigap).
Health Insurance and the Affordable Care Act
The Affordable Care Act, often referred to as ObamaCare, includes a thousand pages of reforms to insurance and the healthcare industry. It changes many things, and these changes are mostly for the better. We go into detail on the Affordable Care Act elsewhere, but the most important things to know are:
- The Health Insurance Marketplace (plans purchased on the Marketplace qualify for premium and out-of-pocket cost assistance based on income)
- The Expansion of Medicaid and CHIP to all adults under 138% Federal Poverty Level
- Improved Medicare
- Limits to Cost Sharing amounts and dollar limits
- Young adults can stay on their plan until 26
- A number of consumer protections, including insurers being required to not discriminate coverage or price due to health status or gender
Health Insurance and Premiums
Most health insurance types require a (typically monthly) premium to be paid. Once that premium is paid, coverage begins and all “covered” medical expenses are paid according to the plan’s cost sharing amounts.
Health Insurance and Cost Sharing
The main benefit of health insurance is cost sharing. Cost sharing describes an arrangement with the insurer where they pay a portion of costs and the policy holder pays the other portion. Typically, in-network costs are covered at the full amount while out-of-network costs are covered at a lesser or separate amount (or aren’t covered at all). A policy holder pays copays and other out-of-pocket costs for “covered benefits” until they meet the plans deductible or out-of-pocket maximum. Once the deductible is met, coinsurance kicks in. Once the out-of-pocket maximum kicks in, the insurer pays all costs.
Health Insurance Networks
Difference between HMOs, PPOs, and other networks.
Medical Savings Accounts
HSAs and other types of medical savings accounts are tax-favored savings accounts that let consumers shop for care (not premiums) tax-free. Since they lower your Modified Adjusted Gross Income, they pair very well with any cost assistance based on income and can even help to drop your income into another tax bracket.
The Requirement to Have Health Insurance
Under the Affordable Care Act, all Americans with incomes above the tax filing threshold must either obtain and maintain “minimum essential coverage” throughout the year or get an exemption for each month they go without coverage. If they do not do this, they will have to pay a fee.
Health Insurance Tax Credits, Taxes, and Exemptions
Depending upon your income, there are a number of ways to save money, a few taxes, and some exemptions from the requirement to have coverage.
Health Insurance Vs Vision and Dental
Although vision and dental coverage are “medical insurance,” their cost sharing does not work the same way. Typically, an out-of-pocket maximum is the most your insurer will pay with these types. They don’t follow the same rules as other types of health insurance.