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'

Health insurance can be tricky to navigate. Managed care insurance plans require policyholders 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. Group Health Insurance Plan

    A group health insurance plan offers coverage at a lower premium ...
  2. Insurance Industry ETF

    An insurance industry ETF invests primarily in insurance companies ...
  3. Insurance

    Insurance is a contract (policy) in which an insurer indemnifies ...
  4. Cover Note

    A cover note is a temporary document issued by an insurance company ...
  5. Weekly Premium Insurance

    Weekly Premium Insurance is a type of financial protection where ...
  6. Additional Insured

    Additional insured is a type of status associated with general ...
Related Articles
  1. Investing

    5 Basic Methods for Risk Management

    The basic methods for risk management can apply to all facets of an individual's life, especially health, and can pay off in the long run.
  2. Insurance

    Long-Term Care Insurance: Who Needs It?

    No one is immune to the possibility of one day needing long-term care - and the costs can deplete a life savings.
  3. Retirement

    Is Your Health Insurance Enough For Retirement?

    Learn what to expect to pay for health insurance in retirement, what is covered through Medicare and what the Affordable Care Act means for retirees.
  4. Insurance

    How to Protect Your Income No Matter What

    What does it mean to insure your income? Here are a variety of ways to do it and some insights into when it might make sense to invest in income insurance.
  5. Insurance

    Insurance in the Age of Obamacare (AET, CI)

    Forget the doomsday scenarios. The insurance industry is doing just fine, despite all attempts to kill the health care reform law.
  6. Financial Advisor

    Buying a Life Insurance Policy? Read This First

    Knowing who needs life insurance, how it works and the different types of insurance can help consumers make informed decisions about this product.
  7. 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.
  8. Insurance

    4 Things That Keep You From Getting Life Insurance

    We look at four common reasons people give for not applying for life insurance, and see if they're legitimate.
RELATED FAQS
  1. What are insurance sector companies usual profit margins?

    Understand what the average profit margin for a company that serves in the insurance sector and what factors can affect the ... Read Answer >>
  2. How does the insurance sector work?

    Learn more about the insurance sector, a historically safe place for equity investors and the home of some of the largest ... Read Answer >>
Trading Center