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

    Personal lines insurance includes property and casualty insurance ...
  2. Insurance Coverage Area

    The geographic region in which an insurance policy’s benefits ...
  3. Medical Cost Ratio

    A comparison of a health insurance company's healthcare costs ...
  4. Broad Form Insurance

    Broad form insurance coverage extends beyond the basics to include ...
  5. Life Insurance

    A protection against the loss of income that would result if ...
  6. Insurance Proceeds

    The benefit proceeds paid out by any type of insurance policy ...
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. Insurance

    4 Ways to Find Good Health Insurance

    Follow these 4 steps to get the best coverage at the most affordable price.
  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

    12 Insurance Questions for High Net Worth Families

    High net worth families should ask themselves these 12 questions regarding comprehensive insurance.
  5. Insurance

    5 Alternatives to Traditional Health Insurance

    Discover five of the most popular alternatives to traditional health insurance plans, alternatives that are increasingly popular as health insurance costs rise.
  6. Insurance

    Bundle Your Insurance For Big Savings

    Bundling your insurance can save you money and time. Read on to see how get the most out of multiline insurance discounts.
  7. Insurance

    Health Insurance Tips For College Students

    Why buy for health insurance when your parents' policy can cover you? Read on to avoid paying twice.
  8. Insurance

    Understanding Your Insurance Contract

    Learn how to read one of the most important documents you own.
  9. Insurance

    Services That Health Insurers Often Decline

    Learning how to navigate health insurance pitfalls will make you a more educated healthcare consumer.
  10. Financial Advisor

    The 4 Best Alternatives to Long-Term Care Insurance

    Understand what long-term care insurance is and the types of people who need this coverage. Learn about four alternatives to long-term care insurance.
RELATED FAQS
  1. 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 >>
  2. 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 >>
  3. What demographic trends are creating potential profits for insurance companies?

    Discover the ways in which insurance companies can profit from demographic trends. Two major ones are aging populations and ... Read Answer >>
Hot Definitions
  1. Bubble

    1. An economic cycle characterized by rapid expansion followed by a contraction. 2. A surge in equity prices, often more ...
  2. Swap

    A swap is a derivative contract through which two parties exchange financial instruments, such as interest rates, commodities, ...
  3. Yield Curve

    A yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but ...
  4. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
  5. Risk Tolerance

    The degree of variability in investment returns that an individual is willing to withstand. Risk tolerance is an important ...
  6. Donchian Channels

    A moving average indicator developed by Richard Donchian. It plots the highest high and lowest low over the last period time ...
Trading Center