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. Personal Lines Insurance

    Property and casualty insurance products for individuals that ...
  2. Insurance

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

    Organizations that facilitate structured and competitive markets ...
  4. Insurance Industry ETF

    A sector-following fund that invests primarily in insurance companies, ...
  5. Medical Underwriting

    The process of assessing the risk associated with providing health ...
  6. Catastrophic Illness Insurance

    A type of insurance that protects the insured, in the event of ...
Related Articles
  1. Insurance

    4 Ways to Find Good Health Insurance

    Follow these 4 steps to get the best coverage at the most affordable price.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. Insurance

    Where to Find Affordable Health Insurance

    The cost of medical services can hit the wallet hard: there are 1.7 million personal bankruptcies every year due to inability to pay medical bills.
  7. Insurance

    The Crippling Cost of Self-Insuring Long-Term Care

    Covering the cost of long-term care without insurance can deplete retirement savings quickly.
RELATED FAQS
  1. 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 >>
  2. In what ways does government regulation impact the insurance sector?

    See how government regulation of the insurance sector leads to higher prices, more risk and a system where the consumer has ... Read Answer >>
  3. What are examples of the largest companies in the insurance sector?

    Read about some of the largest and most influential companies in the insurance sector, a list that includes Berkshire Hathaway ... Read Answer >>
  4. 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 >>
  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. Interest Expense

    The cost incurred by an entity for borrowed funds. Interest expense is a non-operating expense shown on the income statement. ...
  2. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
  3. Pro-Rata

    Used to describe a proportionate allocation. A method of assigning an amount to a fraction, according to its share of the ...
  4. Private Placement

    The sale of securities to a relatively small number of select investors as a way of raising capital.
  5. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  6. Backward Integration

    A form of vertical integration that involves the purchase of suppliers. Companies will pursue backward integration when it ...
Trading Center