Understanding how does health insurance work, what it is, and what type of health insurance plans are available will enable you to choose the right plan. We review benefits of health insurance, the difference between HMO, EPO, PPO and POS plans, and more.
What is Health Insurance
Health insurance is an agreement between the insurer and policyholder. The policyholder pays a premium, and as a result, the insurer reimburses medical expenses as outlined in the contract for the policy term.
When choosing an affordable health insurance policy, you want to understand how policy works so that you choose the best policy for you. In addition, you want to choose a policy that meets your specific needs. Some common components of insurance are the:
- Policy premium – the price of the policy, usually a monthly cost.
- Health Insurance Deductible – the amount you must pay out of pocket before the insurance company starts to pay for their share services.
- Cost Shares – your plan may have coinsurance and copayments that you are responsible for paying.
- Maximum out-of-pocket limit – is the most you will have to spend for covered services in a year.
Benefits of Health Insurance
The insurance company negotiates and contracts with providers and facilities. Using these in-network providers and facilities usually helps lower the cost of health care. Because you pay a monthly premium for a health care policy, you minimize your financial risk of health care expenses.
Once you reach the total out-of-pocket maximum costs, the health insurance company will usually pay for covered services for the rest of the insurance plan year. There may be a comfort for some people in knowing there is an annual limit to how much you pay out of pocket for health care.
How Does Health Insurance Work
7 Common Terms
Let’s look 7 terms used commonly when looking at health insurance plans.
1. Premium – Health Insurance Premium
The insurance company charges a premium, usually paid as a monthly premium, in exchange for health care coverage. In addition to the monthly premium, there are other out-of-pocket costs you may have to pay for.
2. Deductible – How Does Health Insurance Deductible Work?
Most plans have a health insurance deductible. A deductible is the money you pay for health care services each year before your health insurance starts to pay its portion of the cost of covered services. The amount you pay in a deductible may vary considerably, depending on which health insurance policy you choose.
- After you pay your annual deductible, your insurance plan kicks in, and you start paying any cost shares.
In addition to the deductible, copayments and coinsurance are out-of-pocket costs, also called cost shares. Therefore, you may have to pay cost-shares each time you get a medical service after paying your annual deductible.
3. Copay (or Copayment) What is a Copay in Health Insurance?
Copayment a fixed about you must pay for a covered health care service. For example, if you have a $25 copay and your specialty doctor visit cost is $150.
- If you have not yet paid your annual deductible, you must pay $150 at your doctor’s visit.
- However, if you have already paid all of your annual deductible, you must pay the $25 copayment at your visit.
4. Coinsurance Meaning
Coinsurance is the percentage of the covered health care service that you pay for after you met the annual deductible. For example, if your policy has a 20% coinsurance, a $25 copayment, and your specialty doctor visit is $150:
- If you have not paid the annual deductible yet, you would have to pay $150 for the doctor visit.
- However, if you have already paid the annual deductible, you will have to pay 20% of the $150 (which is $30) at the time of the visit as coinsurance, and the $25 copay.
It is not uncommon for an insurance policy to have an annual deductible. In addition, there may be both copayment and coinsurance cost shares that you are responsible for when receiving a covered benefit. However, most preventive care, such as flu shots, annual checkups, and some wellness screenings, usually has 100% coverage, although some plans may require a copay.
5. In-Network Providers
Insurance companies want to provide affordable health insurance options. Your insurance company contracts with providers and facilities that agree to give the insurer’s customers lower rates. These are called in-network providers.
Usually, the health plan will list the in-network providers and facilities on their website. This is one way the insurance company tries to lower your cost because you save money if you use in-network providers. Some policies require that you use only the providers and facilities that are in their network.
6. Maximum Out-of-Pocket Limits
The maximum out-of-pocket limit is a safety net because it is the maximum amount of money you will have to spend for covered services in a year. Once you pay this amount, your insurance company usually pays 100% for covered services for the rest of your benefit year.
The amount you pay for your deductible, and other out-of-pocket costs such as coinsurance and copayments, all count toward the annual maximum out-of-pocket limit.
7. Open Enrollment Meaning
Each year there is a period of time when you can sign up for health insurance or change your plan. This is called open enrollment. The yearly period for open enrollment varies, depending on the healthcare plan you choose. If you don’t sign up for a health insurance plan during the open enrollment period, you probably won’t be able to sign up for health insurance until the next open enrollment unless you have a qualifying event.
If you do have a qualifying event, you can enroll without waiting for the next open enrollment. You’re usually eligible if you have certain life events. For example, getting married, losing other health coverage, having a baby, or moving.
How Does Health Insurance Work?
Different Types of Health Insurance Plans
What is HMO?
An HMO, or Health Maintenance Organization, offers a local network of providers and medical facilities for you to choose from. This type of health plan usually has lower monthly premiums than a PPO or an EPO health plan. This plan may be best for you if you’re comfortable choosing a primary care provider (PCP) to coordinate your health care and with HMO plans you are required to stay within a smaller network of providers and facilities.
What is an EPO plan?
An EPO, or Exclusive Provider Organization, offers a larger network than an HMO plan but you have to use the in network list of providers and medical facilities. This type of plan is usually more pocket-friendly than a PPO plan, however, getting care outside of your plan’s network is usually not covered (except in an emergency). An EPO Plan may be a good option for those who want lower monthly premiums but pay a higher deductible when health care is needed.
What is a PPO?
A PPO, or Preferred Provider Organization, offers the most freedom. You can see out of network providers and specialists without a referral. So, you have more providers and medical facilities to choose from. For this type of health plan, your out-of-pocket costs, such as copays and deductibles, are generally higher with a PPO compared to an HMO or EPO plan. This plan may be best for you if you prefer to pay a higher monthly premium for more choice and flexibility in choosing your provider and health care options.
What is POS Health Insurance?
POS insurance, or Point of Service, plans vary but are usually a hybrid of an HMO and PPO. Like an HMO you usually need a referral to see a specialist. Like a PPO you can go outside of the network. However, if you go outside of the network you usually pay more out of pocket. You are also usually required to get a referral to see a specialist.
Difference Between HMO, PPO, EPO and POS Plan Types
Do you have to use the in-network providers and facilities to get coverage?
Is a referral needed for procedures and specialists?
|Yes, unless it is for an emergency||Yes, usually||Usually one of the cheapest types of health insurance. You choose a primary care provider who must coordinate your care by writing referrals, you must select providers and facilities from the in-network list, but you have lower out of pocket costs|
|Yes, unless it is for an emergency||No||Referrals are not usually required. You must choose providers and facilities from the plan’s in-network list, which is usually larger that the HMO network. Out of pocket costs are usually higher than an HMO plan but lower than a PPO plan.|
|No, but using in-network providers and in-network facilities is less expensive||No||Referrals are not required, you have the freedom to choose any provider or facility (you do not have to use the plan’s in-network list) but out of pocket costs are higher|
|No, but using in-network providers and in-network facilities is less expensive||Yes, usually||You usually need referrals to see a specialist, and you have the freedom to choose any provider or facility|
Shop around and price the different health insurance plans, so that you can find an affordable plan that meets your needs.
What Type of Health Insurance Should I Get?
When choosing what affordable health insurance is best for you, make sure you first understand the basics of health insurance. Think about your total cost of health care and what you would rather pay. For example, would you rather pay:
- Lower monthly premium payments knowing that if you need health care services, your out-of-pocket cost share will be higher, or
- Would you prefer higher monthly premium payments? This means you will have to pay less out of pocket in cost-share when using health care services?
Difference Between HMO, PPO, EPO and POS
- HMO plans are usually the cheapest plan, but you have to say within the smaller network, need to have an assigned primary care provider, and need a referral for a specialist visit.
- PPO plans are usually the most expensive because the offer the flexibility of going to any provider (you don’t have to stay in any network) and you can see a specialist without a referral.
- EPO plans usually cost higher than an HMO but lower than a PPO. With an EPO plan you have to pick providers within a specific network, but the network is usually larger than an HMO network. Usually referrals to a specialist are not required.
- A POS plan is a hybrid plan, and may vary depending on the insurance company. You do not have to use a specific network of providers, however if you stay in network your costs are lower. A referral to a specialist is usually required. It is usually an affordable plan for having out of network coverage.
HMO vs PPO
An HMO is cheaper than a PPO but the HMO has less flexibility. HMO plans also require you stay within a specific network of providers and specialist visits require a referral from your primary care provider. On the other hand, a PPO is usually more expensive because you can use any provider, you do not need to say within a specific network, and you can see a specialist without a referral.
What is an EPO vs PPO
With an EPO, you have to use providers that are considered in network. On the other hand, a PPO plan offers more freedom because you can use any provider. Referrals are usually not required for either EPO or PPO.
What is an EPO vs
Also, when comparing plans, see what the out-of-pocket maximum is, which is the total amount you pay for services before the plan usually pays 100% for covered services.
Health Insurance How Does It Work?
There are different ways you can get health insurance. You can get government health insurance, or private health insurance.
What is Government Health Insurance?
Government Health Insurance usually refers to subsidized medical health insurance provided by the federal or state government to qualified individuals. These health insurance plans may be free or have a reduced cost to enable individuals access to health care at an affordable cost.
There are different ways you can get government health insurance, including:
1.Marketplace- Health Care Exchange
Health Insurance purchased through the Marketplace: There are two different marketplaces available you can buy health insurance.
The federal health exchange, also known as healthcare.gov. In addition, some states run their own Marketplace. Starting on the healthcare.gov site is a good idea because it will automatically bring you to your state marketplace if your state has one.
Health Insurance Subsidy
Subsidized health insurance means you receive financial assistance that helps cover some of your monthly health insurance premium.
The subsidized health insurance is not a loan, you do not have to pay it pay. Rather, it is deducted from the monthly premium you pay for the medical insurance policy you choose.
To enroll in insurance coverage on the health insurance marketplace and see if you qualify for subsidized health insurance, go to healthcare.gov.
You can apply online and enroll yourself. Or, if you rather, you can get help with applying for healthcare coverage. If your state has a state marketplace, you’ll be redirected to your state’s website.
2.Military and Veterans
Health Care through the U.S. Military: For those who serve in the U.S. military and their families, there are three main programs where health care services can be received.
3.Social Insurance Programs
If you are 65 years and older, you are eligible for Medicare, a federal health insurance program. Other things may make you eligible for Medicare. For example, certain younger people with disabilities and also people with end-stage renal disease.
Medicaid is also a government-funded health insurance program. However, Medicaid is available for those that qualify. Medicaid provides comprehensive medical insurance for either free or at a very subsidized cost.
You can get information on government benefit programs. These programs may help you pay for food, housing, health care, and also other basic living expenses. You can find out more about eligibility requirements for programs like:
- Medicaid, a program that provides free or low-cost health insurance benefits to eligible children and adults, and
- Children’s Health Insurance Program (CHIP), a program that offers free or low-cost medical and dental care to uninsured children whose family income is over the Medicaid limit but below the state CHIP limit.
Health Insurance How Does It Work?
What is Private Health Insurance?
Private health insurance is health insurance that government-run agencies don’t market. You can purchase these health insurance plans through:
- private health insurance companies
- online brokers, or
- health insurance agents
It’s likely that if you have health insurance through a job, it was through a private health insurance company.
Sometimes private health insurance plans are referred to as “off-exchange” plans. These plans are not bought on the federal health insurance marketplace or purchased on any of the state marketplace exchanges created under the Affordable Care Act (ACA).
Health Insurance Without a Job
If you’re unemployed, you can get an affordable health insurance plan through the health insurance Marketplace. You may receive subsidies based on your household size and income. You may also qualify for
- Medicaid (free or low-cost health insurance coverage), or
- the Children’s Health Insurance Program (CHIP)
When you apply for a health insurance Marketplace insurance plan using heathcare.gov, you’ll see whether you qualify for 1) a health insurance marketplace plan (along with tax credits and savings on out-of-pocket costs), 2) Medicaid, or 3) Children’s Health Insurance Program (CHIP).
For more information about health insurance, including how you can get health insurance, what is covered, read out post: Health Insurance: Everything You Need to Know
There may be community resources that can help you and your loved one. For example, health insurance consultation, meal delivery programs, and transportation. For more information, read our blog: What are Community Resources and How to Find Them.
Wondering if you can get paid as a family caregiver? For more more information on whether you can get paid as a family caregiver, please read our blog post: Family Caregiver Pay: Can a Family Caregiver Get Paid?
So, how does health insurance work? Understanding health insurance and how it works will enable you to find the best plan for you. There are HMO, EPO, PPO and POS plans, and the differences center around whether you have to say in a specific network of providers, how large the in network provider list is, whether you need to have a primary care provider and whether you need a written referral to see a specialist. You can purchase health insurance through the government or you can buy private health insurance. If you purchase government health insurance on the health insurance marketplace, you will see if you are eligible for a financial subsidy.