There are many different kinds of health insurance plans, but most either fall under group plans — which you get through an employer, union, association or another institution — or an individual plan that you purchase on your own. The specifics of each plan can vary greatly depending on your unique circumstance.

Regardless of the type of plan you select, it’s important to have some kind of health insurance — even if your coverage is very basic. Medical costs can cause significant debt and even bankruptcy if you are hit with an unexpected illness or injury and don’t have adequate coverage. Don’t put yourself at financial risk by going without health insurance.

What is health insurance?

Health insurance is coverage that protects you from financial setbacks in the event of an illness, injury or other medical need that may have high costs. Most people get health insurance either by joining a group plan, like a health plan at work, or buying individual coverage for themselves from an insurance agent at a private insurance company.

When you buy health insurance, you decide how much coverage you need based on your lifestyle and your budget. You evaluate different kinds of options in the policy, like what doctors you have access to, what kind of out-of-pocket expenses you’ll have to cover for medical visits or medicines and other kinds of things. All these different options will affect how much you will have to pay for your monthly premium — the monthly payment you make to your health insurance provider.

Dependents — children and spouses who aren’t working — get health insurance through their parents. If you are a new parent, it’s important to add dependents to your policy. This will increase your premiums and may change other specific aspects of your policy.

Parts of a health insurance plan

Health plans all have different specific plan details, but many offer variations on a few common things. Many variations have to do with how much you’ll be paying out-of-pocket for medical services and procedures. Once you know the specifics of your plan, we recommend including space in your overall budget for covering any costs related to annual check-ups, dental visits and other routine health needs. It’s also a good idea to set aside some money in emergency savings to cover unexpected medical costs.

• See also: budgeting; emergency funds

When evaluating a health insurance plan, look for the following items:

• Deductibles

Most insurance plans have a deductible. A deductible is an amount of money individuals agree to pay out-of-pocket before the insurance company covers the rest of the claim. This amount is described in lots of details in your policy.

Deductibles can either be small sums of money you pay for individual medical services or they can be an overall deductible you have to pay for larger medical procedures. For example, you might have a $20 co-payment required on a doctor’s visit or a $1,000 deductible required on a surgical procedure. The specific amount of your deductibles will vary based on your plan. Always check your plan details before seeking a medical service or procedure so you know whether it is covered and, if it is, whether you have a deductible.

• Co-payments

Co-payments are set amounts that you are required pay for individual medical charges like doctor visits, trips to the emergency room, lab tests and for certain prescription medications. For example, your health insurance plan may require you to pay a standard co-pay of $20 for a visit to the doctor’s office or $10 to fill a prescription medication. Then, the insurance provider will pay the remaining balance.

• Co-insurance

Co-insurance is a percentage amount that you are required to pay for specific health services. Sometimes this is in addition to co-payments and deductibles. Your health plan may cover only 70% of the cost of a certain type of procedure, for example, and you are responsible for paying the remaining 30%. That extra percentage share of the cost is your co-insurance cost. Co-insurance is a common part of dental health plans.

• Exclusions

Exclusions are expenses that are not covered by your health insurance policy. These are visits to certain specialists, voluntary or cosmetic procedures or certain types of medication.

Tip: Expecting parents should look into exclusions carefully, because maternity-related medical visits and procedures are sometimes listed in exclusions. If you are expecting and your plan doesn’t cover pre-natal medical visits, then you need to change your plan or buy additional health insurance.

• See also: Childcare costs

Why you need to buy health insurance?

Living without health insurance is a very dangerous decision. Some people feel they don’t need health insurance because they are healthy — but being healthy doesn’t prevent unexpected illness or injury. Being uninsured or under-insured (having too little coverage) can mean a major financial setback if you get sick or hurt — get in a car accident, catch a virus, end up with a more serious illness. Even the most minor and routine medical procedures can cost thousands of dollars.

Even the most minor and routine medical procedures can cost thousands of dollars.

When you don’t have health insurance, you also are more likely to skip doctor visits and overlook small health issues — which could turn into major medical problems if not caught early on. When you have insurance, you can seek medical care whenever you need it, which means you can be more proactive about preventing illness.

Having health insurance also means you’ll often pay lower rates for the same routine medical care than someone who is uninsured — this is because the insurance company negotiates lower rates. Often, just having health insurance means your medical costs might be lower.

What are the different kinds of health insurance plans?

Once you know which health provider you will purchase your health insurance through, you have many different policy options to choose from. Most health insurance plans fall into two types of categories: group plans and individual plans.

Group health plans

Group plans are the most common type of health insurance. Typically you purchase a group health plan through an employer that offers health insurance as an employee benefit. You also can purchase a group health plan through a professional association, trade union, university or other educational institution or a community organization, like a church. The advantage of being a member of a group plan is that the insurer may not cancel the insurance of a group member unless you leave the group or group plan itself is terminated — so it is a more secure policy.

When it comes to health insurance, it pays to be part of a group. Everyone in the group has the same exact coverage and pays the same premiums. Group premiums are less expensive than individual premiums because insurance companies spread the risk of paying claims over a greater number of people. In most group plans, it’s common for employers and employees to share in paying the premium costs each month.

Types of group health plans

Employee health plans are grouped into two categories:

• Unmanaged care (traditional fee-for-service) plans

These are flexible plans that allow employees more choice and freedom to choose any doctor, but expect to pay more for out-of-pocket expenses and to be reimbursed for usually 80% of the total bill. Normally, you have to pay a deductible before the insurance coverage kicks in. Deductibles often range from $100 to $1,000 per patient, or $300 or more per family. Coverage can be much more limited with these plans, so you make sure you read and understand all the details. These plans also are called indemnity plans.

• Managed care plans

Many companies have a managed-care plan, which means that the healthcare provider makes many decisions — including which physicians are included in the network. This type of health insurance plans provides health care services at a lower cost and must adhere to certain rules designed to lower the cost of providing medical care.

Here are two common types of managed care plans:

• Health maintenance organization
  A Health Maintenance Organization (HMO) is a group plan offering prepaid medical care to its members. An HMO often has its own facilities and provides a full range of medical services. Patients must choose doctors on the HMO staff, including one doctor to be their Primary Care Physician (PCP) or main provider. To see a specialist, patients must get a referral from their PCP first. Otherwise, the insurance will not cover the visit to the specialist. In this way, the PCP acts as a gatekeeper. An advantage of belonging to an HMO is that preventative care, such as routine physical exams, generally is covered without deductibles. It’s typical for HMO plans to require small co-pays per office visit. With most HMOs, you will not be covered if you go out-of-network, except for in cases of emergency care.

• Preferred care provider
  A Preferred Care Provider (PPO) is a group of healthcare providers — doctors and hospitals, for example — who band together to profile health services for set fees. Patients who join a PPO health insurance plan must choose doctors from an approved list. It’s less expensive to visit one of the providers in the plan’s list than to visit a provider outside the network. Out-of-network providers are available, but their costs will be more. There also are limits to types of services that a PPO patient can access and feeds charged for those services. Patients usually must pay a small co-payment or an amount in addition to premiums and satisfy a deductible before you receive insurance benefits. PPO patients also pay a set co-insurance amount.

Individual health plans

If you purchase an individual health insurance plan, you buy the plan yourself directly through a health insurance provider. Individual insurance plans are available for people who can’t join a group plan through work or another organization — often, this kind of plan is for self-employed individuals or people whose work doesn’t offer a health insurance benefit.

If you have to buy your own insurance, there are many kinds of individual health insurance policies for sale, but the premiums you’ll pay are usually very high. Unlike group plans, individual health insurance plans often require a physical examination as part of the application process and insurance companies could exclude you from obtaining coverage if you have certain health problems or pre-existing conditions.

Other plans and health-related accounts

In addition to any group healthcare plan your employer may offer through your workplace, you may have access to other healthcare benefits to help you manage the cost of care.

Flexible spending accounts

Flexible Spending Accounts (FSAs) are a kind of savings account that employers offer as a benefit to staff to help them pay for medial expenses. FSAs allow individuals to set aside pre-tax dollars for medical expenses and qualified healthcare costs (not all healthcare expenses qualify). They are a good way to reduce your out-of-pocket medical costs. There are different kinds of FSAs and they each have different specifics, so check with your benefits manager to see if it’s a benefit available to you.
More FSAs >

COBRA

COBRA is a law that allows people who leave their jobs to continue their health insurance coverage under their former company’s plan for a limited period of time, usually up to 18 months. The purpose of this law is to give people the opportunity and time to secure new health insurance, either on their own or with a new employer. During this time period, individuals pay the full amount of the premium for the same group coverage they had while employed.

High-deductible health plans

If you think you can’t afford regular health insurance, a more affordable option you may want to consider is purchasing a High-Deductible Health Plan (HDHP) that only covers very serious or catastrophic health costs. This coverage goes beyond basic health insurance and usually comes with a specific lifetime maximum amount that you are covered, such as for $1 million. This plan covers an individual or family and comes with maximum out-of-pocket limits and minimum deductibles for coverage. It will offer lower premiums than regular health insurance policies and help you cover bills for major medical events, like surgery, hospitalization or emergency room care. But it will typically not cover routine doctor visits or check-ups.

Health savings account

If you decide to take out a HDHP then you may want to also open a Health Savings Account (HSA). If you have insurance with a $1,000 deductible or higher, you are eligible to participate in a HSA. You can set aside money in an HSA to pay medical expenses not paid by your insurance, including your deductibles, co-pays and co-insurance fees.

Any money you withdraw from an HSA to pay medical expenses is tax-free. The remaining money in the account grows on a tax-deferred basis, like an Individual Retirement Arrangement (IRA) account. Larger medical expenses are covered by a low-cost, high-deductible health insurance policy. What is not used from the account each year stays in the account and continues to grow interest on a tax-favored basis to supplement retirement, just like an IRA. Many employers are beginning to offer HSAs to their employees as a health insurance option — check with your benefits manager to see if this is an option.

How much health insurance coverage to do I need?

Shopping for health insurance is often frustrating and confusing, complicated by the fact that each state has its own rules and regulations that determine what type of insurance product you can buy and from who you can buy them. It really depends on where you state in which you live.

It can be a challenge to find coverage that meets your health care needs and fits within your budget. Take a look at the different plan options and your own health history and purchase only what you need — no more, no less. Having the most coverage isn’t always the answer with insurance.

A coverage limit is the maximum amount of money that your insurance company will pay. In the past, many policies had a lifetime limit — the most an insurance company agrees to pay for covered services during your life. But individual insurance policies and employer-sponsored plans can no longer restrict the lifetime dollar limits amounts as part of covered benefits. Some plans may have an annual limit on covered care and only agrees to pay so much each year for medical care costs.

Also, employer-sponsored health plans and new individual plans won’t be allowed to deny or exclude coverage for children (under age 19) based on pre-existing conditions.

Types of health insurance

Here are the types of health insurance coverage that you may come across when considering your options:

Basic health insurance

Basic health insurance coverage typically covers your basic health needs: medical, hospital and surgical and major medical needs. This type of coverage generally pays for office visits, routine services such as x-rays and laboratory tests. Some basic health insurance policies also cover dental and vision needs, but these require you to pay higher premiums.

Dental and vision insurance

Some group plan also provide dental and vision coverage for an additional costs in premiums. Most of these plans have low deductibles but have set limits on what services they will cover, such as exams, x-rays and fillings, and how much they’ll in expenses pay per year per person. Vision insurance often pays for exams for eye disease as well as for prescription adjustments and lenses. Plans usually cover eye exams on a regular basis and the purchases of corrective glasses, contacts and maybe prescription sunglasses.

Medicaid

Medicaid is a government-sponsored health insurance for people with low incomes and limited resources. This program is designed to help families who live in poverty and are unable to afford private health insurance or medical care. Like Medicare, there are limitations and exclusions.

Medicare

Medicare is a government-sponsored health insurance for people currently age 65 or older. Medicare is run by the Social Security Administration and fund my employee payroll deduction. Like other plans, there are maximum benefits, exclusions, and other requirements.
More about Social Security and Medicare >

How to buy health insurance

The first place to look for health insurance is your employer. If you employer offers a group health plan, talk with your benefits manager about your plan types and options and enroll through work. This will give you coverage and help keep your premiums down.

If you don’t have a health insurance plan through work, see if you can get it through a professional association, a trade union, your school if you are a student, your church or another community organization. Joining a group health plan will help to keep your premiums down.

If you don’t have the option to join a group plan, then shop around online to compare individual plans, their options and their rates. Some useful comparison sites are:

• U.S. Department of Health and Human Services health-care website: www.healthcare.gov
• HealthFinder: www.healthfinder.gov
• eHealth Insurance: www.ehealthinsurance.com
• Vimo: www.vimo.com
• Insweb: www.insweb.com
• Insurance.com: www.insurance.com
• Netquote: www.netquote.com

Words to Know

Here are some key words from this topic:

Health insurance

Health insurance is an insurance plan that helps individuals cover the high-medical costs associated with injury or illness.
Return to reading

Insurance agent

An insurance agent is a professional insurance salesperson who acts for the insurer in negotiating, servicing or writing an insurance policy.
Return to reading

Premium

Premium is a fee you to pay on an insurance policy to stay covered in order to keep your policy up to date. These fees are normally paid each month or on a rotating cycle.
Return to reading

Deductible

An insurance policy deductible is an amount of money that a policyholder agrees to pay out-of-pocket before the insurance coverage kicks in. The amount that you pay monthly for a policy is in part determined by how high a deductible you set. Typically there is no deductible for liability coverage.
Return to reading

Co-payment

A co-payment is a fee that many health insurance plans require individuals to pay for certain medical services or costs, such as doctor’s visit or a prescription medication.
Return to reading

Co-insurance

Co-insurance is a method of cost sharing between a health insurance policyholder and the insurance provider. Typically the insured person is responsible for paying a certain percentage of a medical expense and the insurance provider pays the remainder.
Return to reading

Exclusions

Exclusions are expenses that are not covered by your health insurance policy. These are visits to certain specialists, voluntary or cosmetic procedures or certain types of medication.
Return to reading

Claim

A claim is a policyholder’s request for reimbursement for a loss under the terms of an insurance policy. When you get into an accident, you file a claim with your insurance company. This is who, what, when, where, why and how the accident took place.
Return to reading

Coverage

Coverage refers to the protection provided to an insurance policy holder by the terms of that policy.
Return to reading

Health maintenance Organization

A Health Maintenance Organization (HMO) is a group plan offering prepaid medical care to its members. An HMO often has its own facilities and provides a full range of medical services. Patients must choose doctors on the HMO staff, including one doctor to be their Primary Care Physician (PCP) or main provider. Return to reading

Preferred Provider Organization (PPO)

A Preferred Care Provider (PPO) is a group of healthcare providers — doctors and hospitals, for example — who band together to profile health services for set fees. Patients who join a PPO health insurance plan must choose doctors from an approved list.
Return to reading

Pre-existing condition

A pre-existing condition is an illness, disease or condition an individual has at the time of enrollment in a healthcare plan. Pre-existing conditions can affect whether a plan will cover you or how much your rates will be.
Return to reading

Flexible spending account

Flexible Spending Accounts (FSAs) are a kind of savings account that employers offer as a benefit to staff to help them pay for medial expenses. FSAs allow individuals to set aside pre-tax dollars for medical expenses and qualified healthcare costs (not all healthcare expenses qualify).
Return to reading

COBRA

Consolidated Omnibus Reconciliation Act (COBRA) is a federal law that allows people who leaves employment to continue their health insurance under the company plan for a limited period of time.
Return to reading

High-deductible health plans (HDHP)

High-Deductible Health Plan (HDHP) is a health insurance plan that only covers very serious or catastrophic health costs. This coverage goes beyond basic health insurance and usually comes with a specific lifetime maximum amount that you are covered, such as for $1 million.
Return to reading

Health savings account

A Health Savings Account (HSA) is a type of savings account designed to let you set aside money to pay medical expenses that aren’t covered by your insurance. The remaining money in the account grows on a tax-deferred basis. Money you withdraw from an HSA to pay medical expenses is tax-free.
Return to reading

Coverage limit

A coverage limit is the maximum amount of money that an insurance company will pay to a policyholder for a claim.
Return to reading

Learn more key words. Visit our financial Glossary.

Links We Like

Here are a couple online features you might find useful:

• U.S. Department of Health and Human Services health-care website: www.healthcare.gov
• HealthFinder: www.healthfinder.gov
• eHealth Insurance: www.ehealthinsurance.com
• Vimo: www.vimo.com
• Insweb: www.insweb.com
• Insurance.com: www.insurance.com
• Netquote: www.netquote.com