What is 'Health Insurance'

Health insurance is a type of insurance coverage that pays for medical and surgical expenses incurred by the insured. Health insurance can reimburse the insured for expenses incurred from illness or injury, or pay the care provider directly. It is often included in employer benefit packages as a means of enticing quality employees. The cost of health insurance premiums is deductible to the payer, and benefits received are tax-free.

BREAKING DOWN 'Health Insurance'

Managed care insurance plans require policy holders to receive care from a network of designated health care providers for the highest level of coverage. If patients seek care outside the network, they must pay a higher percentage of the cost. In some cases, the insurance company may even refuse payment outright for services obtained out of network. Many managed care plans require patients to choose a primary care physician who oversees the patient's care and makes recommendations about treatment. Insurance companies may also deny coverage for services that were obtained without preauthorization. In addition, insurers may refuse payment for name brand drugs if a generic version or comparable medication is available at a lower cost.

Insurance plans with higher out-of-pocket costs generally have smaller monthly premiums than plans with low deductibles. When shopping for plans, individuals must weigh the benefits of lower monthly costs against the potential risk of large out-of-pocket expenses in the case of a major illness or accident. Health insurance has many cousins, such as disability insurance, critical (catastrophic) illness insurance and long-term care (LTC) insurance.

Affordable Care Act

In 2010, President Barack Obama signed the Patient Protection and Affordable Care Act into law. It prohibits insurance companies from denying coverage to patients with pre-existing conditions, and allows children to remain on their parents' insurance plan until they reach the age of 26. In participating states, the act also expanded Medicaid, a government program that provides medical care for individuals with very low incomes. In addition to these changes, the ACA established the federal Healthcare Marketplace. The marketplace helps individuals and businesses shop for quality insurance plans at affordable rates. Low-income individuals who sign up for insurance through the marketplace may qualify for subsidies to help bring down costs.

Americans are required to carry medical insurance that meets federally designated minimum standards or face a tax penalty. In certain cases, taxpayers may qualify for an exemption from the penalty if they were unable to obtain insurance due to financial hardship or other situations. Two public health insurance plans, Medicare and the Children's Health Insurance Program, target older individuals and children, respectively. Medicare also serves people with certain disabilities. The program is available to anyone age 65 or older. The CHIP plan has income limits and covers babies and children up to the age of 18.

RELATED TERMS
  1. Insurance

    A contract (policy) in which an individual or entity receives ...
  2. Health Insurance Marketplace

    Organizations that facilitate structured and competitive markets ...
  3. Classified Insurance

    Insurance coverage provided to a policyholder that is considered ...
  4. Insurance Premium

    The amount of money that an individual or business must pay for ...
  5. Insurance Coverage Area

    The geographic region in which an insurance policy’s benefits ...
  6. Broad Form Insurance

    Insurance coverage that extends beyond the basics to include ...
Related Articles
  1. Insurance

    How To Buy Long-Term Care Insurance Cheaply

    Consumers looking for long-term care insurance shouldn't have to pay full price. Despite the sometimes-hefty costs, there are ways to save on premiums.
  2. Retirement

    How to Choose the Best Long-Term Care Insurance

    Here's how to find and select a policy that provides the best coverage for you.
  3. Investing

    Methods of Handling Risk: A Quick Guide

    Discover the five methods to manage pure risk, and learn how they can be implemented to mitigate risk with health and life insurance.
  4. Insurance

    Do You Need Short-Term Health Insurance?

    Yes, if you've no other coverage options. Here’s what you need to know about how it works and how it differs from employer-provided and marketplace plans.
  5. Insurance

    7 Mistakes to Avoid When Buying Health Insurance

    Understand the need for health insurance and why some undervalue the need for coverage. Learn about the top seven mistakes to avoid when purchasing insurance.
  6. Insurance

    Why Health Insurance Premiums Will Rise in 2017

    To battle the costs and challenges of the Affordable Care Act, many health insurances are raising their premiums in 2017.
RELATED FAQS
  1. What are some examples of industries that practice price discrimination?

    Understand the various types of insurance coverage offered in the insurance marketplace, and learn why each policy should ... Read Answer >>
  2. What is the average return on total revenue for the insurance sector?

    Learn about the three main segments of the insurance industry, and find out what the average return on revenues is for the ... Read Answer >>
  3. Which insurance policies do I really need?

    Your needs for insurance depend on your situation and can't be generalized for everyone, but there are a lot of options available. ... Read Answer >>
  4. Can your insurance company cancel your policy without notice?

    Learn about your rights as an insured when it comes to your insurance policy being canceled, including how to access your ... Read Answer >>
  5. Why do growth investors buy insurance stocks?

    Discover why growth investors buy insurance stocks; these stocks are tied to major secular trends such as rising costs and ... Read Answer >>
Hot Definitions
  1. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
  2. Risk Averse

    A description of an investor who, when faced with two investments with a similar expected return (but different risks), will ...
  3. Indirect Tax

    A tax that increases the price of a good so that consumers are actually paying the tax by paying more for the products. An ...
  4. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  5. Beta

    Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. ...
  6. Demand Elasticity

    In economics, the demand elasticity refers to how sensitive the demand for a good is to changes in other economic variables. ...
Trading Center