Simply put, insurance is a legal contract between two parties, designed to hedge against the risk of uncertain or sudden financial losses. The two parties being the insurer or the insurance company, which provides the insurance, and the insured, which buys the insurance. The losses mentioned above may occur in the form of damage to some property of the insured or even the insured itself.
Insurance acts as risk management or, more accurately, a risk transfer system for individuals or businesses. The insurer pays a financial reimbursement against some losses to the insured. This is facilitated by the insurer collecting regular premiums (money) from the insured. The premiums collected are then pooled together to cover the risks.
At a comprehensive level, there can be two major categories of insurance:
1) Life Insurance: Life insurance, as the name implies, is a kind of insurance that one buys to compensate for the sudden death or disability of the insured. They help to secure the financial future of their dependents and loved ones.
2) General Insurance: General insurance, on the other hand, is to compensate for any other losses apart from death. The different types of general insurance can be motor insurance, property insurance, health insurance etc.
Health insurance is a type of insurance, designed to pay for the medical expenses of individuals. They can either be purchased privately, through social insurance or a government-funded social welfare program. Besides medical expenses, health insurance can also cover long term nursing requirements or some disabilities. Thus, they provide protection against a wide range of health-related medical expenses.
With a view to reducing the amount spent under uncompensated care, the Affordable Care Act (ACA), was brought in by President Obama in 2010. This act mandated everyone to have a health insurance plan. It also prevented insurance companies from denying insurance to people with pre-existing conditions. The act was instrumental in expanding health insurance to millions of Americans. There was also a penalty for the ones who did not opt-in for health insurance.
Though the subsequent government did away with the penalty clause, a large number of Americans opt for various types of health insurance plans.
Advantages Of Health Insurance
The below are some of the major advantages of health insurance in the US:
- Medical Expense Coverage: There are a lot of reasons for which one might incur medical expenses. A routine trip to a doctor, a medical emergency or a surgery etc all lead to expenses, both large and small. Having health insurance, therefore, helps cover these medical expenses. So, one of the major advantages of such an insurance is the coverage it provides to hedge against medical expenses.
- Better Healthcare: Insured people, generally have access to better healthcare in terms of both quality as well as timeliness. Hence, if not for the medical expenses that get covered, one can always opt for insurance to avail better healthcare services.
- Risk Management Against Lifestyle Diseases: The modern times are characterized by unhealthy diets, sedentary lifestyles and unending desk work. All this has contributed to the rise in the incidence of lifestyle diseases. Health Insurance, therefore, is becoming increasingly important to compensate for the expenses hence incurred.
Major Types Of Private Health Insurance
The following are some of the major types of health insurance offered by US insurers:
- HMO (Health Maintenance Organization) plans: These are the most popular types of insurance plans. A network of health care providers offers its services. This plan requires selecting a primary care provider who is responsible for coordinating all the health services accorded to you. They cover almost all kinds of preventive care and are ideal for families or individuals planning to see their primary doctor regularly. Though specialist visits are also covered, they require a referral from the primary care provider.
- PPO (Preferred Provider Organization) plans: Under a PPO plan, an individual or family might be able to avail any health care provider services, including specialists, without any referral. This plan is ideal for those who have to visit a specialist regularly.
- EPO (Exclusive Provider Organization) plans: These plans are similar to PPO plans. The difference being that while PPO plans offer some coverage outside your network of doctors, EPO plans generally do not. These plans are well suited for those who do not have any qualms with limiting themselves to a fixed set of healthcare providers.
- POS (Point of Service) plans: These are somewhat versatile plans and are ideal for people who are ready to pay extra for some added flexibility. The POS plans are a hybrid of HMO and PPO plans. While they do require designating a primary care provider for check-ups and referrals, one can also opt for out-of-network providers.
Factors To Consider While Buying
As is evident, buying health insurance offers a lot of benefits for the insured. However, considering the variety of health insurance types available, making the optimal choice requires one to consider certain factors. These are:
- Plan Coverage: The first factor to consider is the coverage of the plan. Most of the plans cover a range of ‘essential health benefits’. These include emergency services, hospitalization, preventive services, maternity and newborn care, prescription drugs etc. Other inclusions might be of outpatient care or rehabilitation services etc.
- Cost: Another factor to consider are the costs associated with the plan you are opting to buy. While premiums are an obvious regular cost that occurs, there are many other costs as well. These costs are generally in the form of deductibles, co-pays or coinsurance, etc. and are incurred when one avails the insurance. These costs generally represent the amount that is paid out of one’s own pocket. In general, higher the upfront premium, the lesser are the costs associated with availing the care and vice-versa.
- Providers Under Network: The health care providers are the network of hospitals, physicians, pharmacies, laboratories, etc. that are included under a particular insurance plan. While some plans allow flexibility when it comes to opting for a provider, others are more rigid in their approach. It, therefore, makes sense to decide your insurance plan based on your provider network.
Who All Should Buy A Health Insurance?
The increase in the prevalence of diseases and the subsequent costs provides a strong pull in favor of everyone buying an insurance. In addition, there is no one size fits all approach that works. Insurers may offer different features based on the population cohort they are referring to:
- Student: A student in the US can avail the benefits of their parents’ insurance plan until they turn 26 years of age. Till then, they do not necessarily have to buy any individual health insurance plans. Also, sometimes the universities they are studying in might provide an affordable insurance plan of their own.
- Self-Employed: For the self-employed, who have left their jobs to start their own work, there might be provisions to continue with their previous employer’s coverage. That is, until they find a new plan.
- In the military or a veteran: The ones actively serving in the military do not have necessarily have to buy health insurance. It is because their insurance needs are taken care of by special military health services specific programs like Tricare. For the veterans, the same is taken care of by the U.S. Department of Veteran Affairs.
- Senior Citizen: The insurance needs of the senior citizens, above the age of 65, are taken care of by Medicare. It is a special program designed specifically to cover medical expenses in old age.
- Low Income: Just like Medicare takes into account the health insurance needs of the aged, Medicaid exists for the low-income categories. One qualifies for Medicaid if their income lies between a certain percentage of the poverty line. It generally works by providing a subsidy to those who qualify. The subsidy makes the health insurance plans affordable for the ones in the low-income category.
The above list, by no means exhaustive, lists out some specific insurance features for the pertinent population categories.
In conclusion, it is quite evident that having health insurance offers a lot of benefits. In a country like the US, the medical expenses are exorbitant and can easily spiral out of control. Thus, having insurance goes a long way in covering some of these rising costs.
However, health insurance in the US has its own share of complexities. Insurance here is basically provided by a combination of private and government-run programs. While the elderly and low-income categories are covered under the public programs Medicare and Medicaid respectively, others have to take the private insurance route. Even with insurance, surprise bills in the form of co-payments or co-insurance can occur. These are especially tricky to understand, for the ones new to such a system.
So, while essential, it is always wise to be well aware of the payment nuances of the various health care plans before opting for one.