Beginner's Guide to Health Insurance

What is health insurance? 

Health insurance is a type of insurance that covers the medical expenses of an insured individual as a result of sickness or injury. No one plans to get sick or hurt, but most people need medical care at some point. Health insurance helps you cover these costs and offers many other important benefits as preventive care. 

However, health insurance doesn’t always cover 100% of your costs. Generally, they share costs with you until a certain point, called an out-of-pocket limit. Once you reach your out-of-pocket limit, health insurance will pay 100% of your healthcare costs. 

There are two types of health insurance: public health insurance and private health insurance. Public health insurance is subsidized or paid entirely by public (government) funds, like Medicaid and Medicare. Private health insurance is paid for in part or entirely by the individuals being covered. Most people have some form of private health insurance, whether they purchase it through a marketplace or get it from an employer.

How health insurance works

There are a few ways that health insurance companies might share costs with you, and they make up the 5 major features of your health insurance plan that you need to be aware of, as it is what decides how much you are going to pay for your healthcare. 

Premium 

The premium is the monthly payment you make to an insurance company to keep your policy active. 

Deductible 

The deductible is the amount you pay for covered healthcare services before your insurance plan starts to pay. After you pay your deductible, you still have to pay copayment or coinsurance for covered services until you hit the out-of-pocket maximum, after which the plan pays for 100% of services. 

If you have a family health insurance plan, you should also be aware of your family deductible in addition to individual deductibles for each family member. Once the family deductible is met, everyone in the family is covered even if their individual deductibles are not met.

Copayment 

A copayment or “copay,” is a fixed amount that you pay for a specific service after you've paid your deductible. For example, you may have a $25 copay every time you see your primary care physician, a $10 copay for each monthly medication, and a $250 copay for an emergency room visit. 

Coinsurance 

Coinsurance is a percentage instead of a flat fee. It’s a percentage of the cost that you still have to pay for covered services after you've paid your deductible and until you reach your out-of-pocket maximum. For example, if a medical procedure costs $100 and you have 30% coinsurance, you will pay $30 of that bill, usually in addition to your copay. 

Out-of-pocket maximum 

The out-of-pocket maximum, or out-of-pocket limit, is the most you’ll have to pay for covered healthcare services in a plan year, including your deductible, copayments, and coinsurance. Monthly premiums do not count towards your out-of-pocket maximum. 

The maximum out-of-pocket limit for 2021 plans is $8,550 for individual plans and $17,100 for family plans. These are the limits set by the federal government on how much your health insurance plan can legally make you pay. However, in most cases, your plan's out-of-pocket maximum amount will be much lower. 

It is important to understand that your premium it’s not equivalent to how much you will pay for your health care. Plans with lower premiums tend to have higher deductibles, copayment, or coinsurance, so you could end up having a higher out-of-pocket cost if you need major medical assistance in the plan year.

How much does a private health insurance plan cost? 

Health insurance premiums have increased steadily due to many different circumstances, including political uncertainty as well as the cost of doing business and the costs vary widely by state and insurance market. 

However, as established in the Affordable Care Act (ACA), which is the comprehensive healthcare reform signed into law by President Barack Obama in March 2010, more commonly known as Obama Care, there are only five factors that go into setting your premium cost:

1. Your age 
2. Your location 
3. Whether or not you use tobacco
4. Individual vs. family plan 
5. Your plan category 

Health insurance companies are not allowed to take your gender or your current or past health history into account when setting your premium. Additionally, low-income individuals may qualify for some different types of subsidies which can reduce the total cost of health insurance.

What are the different health plan categories? 

There are two main components that categorize your plan and determine the type of coverage you have and the amount you pay for your monthly premium. These are 1. the metal tiers and 2. the types of networks of healthcare providers your plan includes. 

Metal tiers 

Plans in the marketplace are primarily separated into 4 health plan categories, based on how the medical costs are split. It’s important to understand that metal tiers don’t describe the quality of the plan or service you are going to receive, but just the way your health insurance is going to share costs with you. 

Here’s how health insurance plans split the costs by metal tier:

1. Bronze - 40% consumer / 60% insurer 
2. Silver - 30% consumer / 70% insurer 
3. Gold - 20% consumer /  80% insurer 
4. Platinum - 10% consumer / 90% insurer 

These numbers take into account the deductible, coinsurance, and copayments. In general, bronze plans have the lowest monthly premiums and platinum plans have the highest.

In addition to the 4 metal tiers, there is another category called catastrophic plans. These plans generally have a very low premium but very high deductibles, which is often the same out-of-pocket max. However, they may be an affordable way to protect yourself from worst-case scenarios, like a serious accident or illness that could cause you to go into severe debt.

Catastrophic plans must also cover the first 3 primary care visits and preventive care for free, even if you have not yet met your deductible. However, they are only available for people under 30 or people with a “hardship exemption” and you cannot use any type of subsidies on catastrophic plan premiums. 

Networks of healthcare providers 

All private health insurance plans work by partnering with networks of healthcare providers, however, the way you access that network and the restrictions for accessing out-of-network providers will depend on the type of plan you have. There are 4 different types of plans regarding the network of healthcare providers. The kind you choose will help determine your out-of-pocket costs and which doctors you can see.

• HMO: Health Maintenance Organization 
• PPO: Preferred Provider Organization 
• EPO: Exclusive Provider Organization 
• POS: Point of Service

HMO plans are the most restrictive type of plan when it comes to accessing your network of providers. If you have an HMO plan, you’ll be asked to choose a primary care physician (PCP) that is in-network. All of your care will be coordinated by your PCP, and you’ll need a referral from your PCP to see a specialist. HMOs, do not cover any out-of-network healthcare costs. HMO plans typically have cheaper premiums than other types of plans. 

PPO plans are the least restrictive type of plan when it comes to accessing your network of providers and getting care from outside the plan’s network. Typically, you have the option between choosing an in-network doctor, who you can see at a lower cost or an out-of-network doctor at a higher cost. You do not need a referral to see a specialist, though you may still choose a primary care physician (some states, like California, may require that you have a primary care physician). PPO plans typically have the most expensive premiums. 

EPO and POS plans are a hybrid of HMO and PPO plans and typically have more expensive premiums than HMOs, but are less expensive than PPOs. 

EPO plans give you the option of seeing a specialist without a referral. However, EPO plans do not cover out-of-network physicians. POS plans require you to select a primary care provider on an HMO-style network and you’ll need a referral from your PCP to see HMO specialists. However, you also have access to a PPO-style network with out-of-network options at a higher cost.

Emergency care

There is one important exception regarding the healthcare providers you can access in any type of plan, and it is in emergency care. Under the Affordable Care Act (ACA), insurance companies can’t charge you more for getting emergency care services at an out-of-network provider, and it is because in an emergency you should get care from the closest hospital that can help you, as you don’t have the time to check to see if the physician or emergency room is in-network. 

The 10 essential benefits health insurance plans must cover 

The Affordable Care Act (ACA) made covering certain categories of services a requirement for all health insurance plans available to consumers. These required services are known as the 10 health essential benefits.

These 10 categories of services are: 

1. Ambulatory patient services 
2. Emergency services 
3. Hospitalization for surgery, overnight stays, and other conditions 
4. Pregnancy, maternity, and newborn care 
5. Mental health and substance use disorder services 
6. Prescription drugs 
7. Rehabilitative services and devices 
8. Laboratory services 
9. Preventive and wellness services, as well as chronic disease management 
10. Pediatric services, including dental and vision coverage for children

Note that these are categories of services and that the specific services offered within these categories may differ from states and insurance plans. For most health insurance plans, you can find the specific benefits your plan covers on your Summary of Benefits and Coverage document.

Employer-provided health insurance 

Employer-provided health insurance plans, also called group plans, are private plans selected and purchased by your employer and offered to eligible employees and their dependents. Employer-provided plans need to follow the same rules as other private insurance plans and cover the 10 essential benefits. Because group health insurance covers a large pool of people and generally your employer shares the cost of your premium with you, they are typically much more affordable than a comparable individual plan, with lower premiums and deductibles. 

Short-term health insurance 

Short-term health insurance plans provide limited healthcare coverage for a temporary gap in permanent coverage, protecting you from expensive medical bills that arise from unexpected health changes or emergencies. Term lengths vary by state, but in some states, you can apply for up to 12 months of coverage. They are typically much more affordable than major medical plans, but these types of plans are not required to comply with the Affordable Care Act (ACA) requirement and don’t typically offer the same amount of coverage as long-term health insurance. Additionally, they do not cover preexisting conditions. 

Short-term health insurance can provide a temporary solution when you are between health plans, for example, if you are looking for a new job or a new job has a waiting period before your health insurance kicks in or if you are looking for insurance outside of the open enrollment period. 

Open enrollment period 

Generally, there is only one period of time in which you are allowed to shop for a new long-term health insurance plan in the health insurance marketplace. This is called the open enrollment period. 

You cannot purchase a health insurance plan outside this period of time unless you qualify for a special enrollment period. Some examples of qualifying events include losing an employment insurance plan, turning 26 (age limit for children’s coverage in parent's plan), getting married, having a baby, or starting a new job and getting group health insurance. In most cases, if you experience a qualifying life event, you're able to enroll up to 60 days after the event. 

The federal open enrollment period runs from November 1st through December 15th every year for health insurance coverage beginning the following year. For example, for health insurance coverage beginning in 2021, the open enrollment period was from November 1st through December 15th in 2020. 

Important: By executive order from President Biden and to help those who are still in need of health care coverage, a new Special Enrollment Period (SEP) has been opened through the Health Insurance Marketplace for 2021. This SEP started on February 15 and ends on August 15 of 2021. For more information consult the federal marketplace.

What happens if I missed the open enrollment period? 

If you missed the open enrollment period you would need to wait until the next open enrollment period, starting on November 1, 2021, to change your health insurance plan or enroll in a new one. 

However, you can still access a short-term health insurance plan for emergency coverage. And you could complement it with some healthcare alternatives like a telehealth plan to address common medical and behavioral health issues in a much more affordable and convenient way. 

Explore Health Karma Virtual Primary Care + Behavioral Health membership program.

In addition to telehealth, Health Karma can help you stay organized and on track with your health and wellness. If you have an insurance plan with a high deductible, copays, and coinsurance, you can connect your insurance to your profile to review your current plan usage in real-time and track progress toward meeting your deductible and out-of-pocket maximum.