Health Insurance Basics

Premiums, co-pays, deductibles, in-network, out-of-network …welcome to the wonderful world of health insurance. And you thought advanced calculus was confusing!

Chances are, up until now you've been covered by your parents' health insurance. They probably chose your doctors, oversaw your care, and paid your bills. But maybe you're getting to a different point in your life.

Beginning to take charge of your own health care is a big step and it can be a little overwhelming. Here's a quick crash course on insurance.

What Exactly Is Health Insurance?

Health insurance is a plan that people buy into in return for coverage on all kinds of medical care. Most plans cover doctors' appointments, emergency room visits, hospital stays, and medications.

The idea behind insurance is simple: Medical care can be so expensive that most people can't pay for it entirely out of their own pockets. But if a group of people gets together, and they each agree to pay a fixed amount every month (whether they need medical care at that time or not), the risk is spread out over the whole group. In other words, each person is protected from high health care costs because the burden is shared by many.

Do I Really Need It?

You're young, you spend more time in the gym than David Beckham, you rarely get anything worse than a cold, and your great-grandparents are still kicking at 99. Why bother spending money on insurance? The odds are pretty good that you'll never get seriously sick, right?

We certainly hope so. But every day, thousands of "perfectly healthy" people break bones, need stitches, get into car accidents, find out they have illnesses, or are told they need surgery for one condition or another.

You may never be one of them. But what if you are? Medical bills from even a minor car accident can wreak havoc on your finances. A major illness can wipe out your family's savings as well. Insurance may be expensive, but not having it may cost way more.

timing is everything

OK, So Maybe I Do Need It. How Can I Get It?

There are many different ways to buy health insurance, and the costs and benefits vary widely for each one. You'll need to see which options are available to you, given your age and employment status, and also which one best meets your needs. You'll probably need to wade through a lot of health care buzzwords, too.

Here are some of the ways you might be able to get insurance:

  • Parents' plan. Most family insurance plans cover kids until they turn 18 or 19. Many also cover full-time, unmarried students between the ages of 19 and 25. Your parents will need to check their specific policy for details.
  • COBRA. COBRA (short for the Consolidated Omnibus Budget Reconciliation Act of 1985) lets you purchase the health plan your parents currently have for you so you can continue coverage when you would otherwise lose eligibility (for example, if you are 18 and not continuing your education, if you graduate from college but don't have a job with health insurance, or if you are over 25 and still going to school). COBRA is time limited, meaning you can only buy it for a certain length of time after leaving your parents' insurance.
  • Short-term policy. Many insurance companies let you buy short-term, or "student," insurance policies that help you bridge the gap between school and your first job. These plans are similar to COBRA, though they're usually more basic and affordable.
  • Employer plans. This is the way most people in the United States get their health insurance. It is also usually the least expensive option, since employers often help pay for part of the insurance. Some employers will offer you health insurance coverage on your first day of work; others may make you work a period of time first (30, 60, or 90 days) before you become eligible.
  • Individual policy. Buying comprehensive health insurance on your own is probably the most expensive option, since you're not sharing the risk with a larger group of people (such as other students, employees, etc.). Also, these plans tend to require you get medical tests in order to qualify. You may be turned down or have to pay more if you're considered a higher risk because of a health condition or an unhealthy behavior like smoking.
  • Subsidized state program. If you are under 18, uninsured, and your family makes below a certain level of income, you may be eligible for state help through a program called SCHIP (State Children's Health Insurance Program). Benefits vary from state to state so you'll need to check with your state's Department of Health and Human Services.
  • Medicaid. Medicaid is another type of government-funded health insurance that's available only to certain people. These may include low-income parents and people with disabilities.

What If I Already Have a Health Condition?

If you've been living with an illness, such as asthma or diabetes, insurance companies call that a "pre-existing condition." Unfortunately, people who try to purchase a policy after they've been diagnosed with a pre-existing condition often find that prices are way higher. They also might not cover any treatment related to your pre-existing condition for a set period of time once you enroll.

where to go for advice

How Do I Figure Out What Type of Insurance I Need?

Each insurance plan is different when it comes to what's covered, what's not, and how much things cost. Figuring out which one is right for you is a bit of a balancing act: You want to get the most benefits at the least cost.

Start by looking at all the elements of the plan and not just the price tag. For example, a plan with a low monthly premium isn't necessarily the cheapest — your co-pay might be very high or you might pay way more for your prescriptions. So if you see a doctor a lot or take prescription medications regularly, a more expensive plan that covers a higher percentage of the cost to see a doc or get a prescription may actually turn out to be cheaper.

You'll also have to look at whether your plan covers things that are important to you. For example, many plans don't cover things like dental or vision care, counseling sessions, or alternative therapies like chiropractic or acupuncture.

The three major plans you'll likely have to choose from are: indemnity plans, managed care plans, or consumer-driven health plans.

Indemnity Plans

With this kind of plan you can see any doctor you want any time you want. You pay the doctor directly and then send your claim to your insurance company. The company pays you back for part of the total cost. (For example, if your doctor charged $100, you might get 80%, or $80, back.)

Indemnity plans (also called fee-for-service or reimbursement plans) generally don't pay for preventive care, like annual physical exams. Because they offer you the most choice, the monthly premium is usually higher than other types of health plans.

Managed Care Plans

When you get insurance through an employer, it is often through a managed care plan. With managed care, a health insurance company negotiates a contract with certain health care providers, hospitals, and labs to provide care for its members at a lower cost.

The four basic types of managed care plans are:

  1. HMO (Health Maintenance Organization). When you join an HMO, you choose a primary care doctor. This doctor coordinates all your medical care, from annual physicals to hospitalizations. Although the co-pay for these services is usually fairly low, the tradeoff is that you can only use doctors and hospitals who are approved by your plan. Also you can't see any kind of specialist without a written referral.
  2. PPO (Preferred Provider Organization). A PPO is like an HMO, only with more flexibility. Instead of choosing a primary care doctor, you can see any doctor you want. However, if you choose a doctor who participates in your plan, you will pay less.
  3. POS (Point of Service). With a POS plan, you generally choose an in-network doctor for most of your care, but you may go outside the network if you need to see a specialist. If you do go out of network, you may have to pay more.
  4. EPO (Exclusive Provider Organization). An EPO is like a PPO, only the network of participating doctors is smaller.

Consumer-Driven Health Plan (CDHP)

This type of plan is fairly new on the health care scene. It lets you set aside a certain amount of money in a special health insurance savings account. You are in charge of how you use this money to cover your health care costs. However, the deductible you have to reach is usually higher than in the other types of plans.

It may seem odd buying something that you might never need. Just consider it an investment in your peace of mind. Since peace of mind means less stress, you'll start enjoying health rewards right away!

Reviewed by: Cory Ellen Nourie, MSS, MLSP
Date reviewed: March 2009

Kids Health

Note: All information is for educational purposes only. For specific medical advice, diagnoses, and treatment, consult your doctor.

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