Health Insurance Basics
Core terms
Health insurance pays for sickness and injury expenses or replaces income. Know the cost-sharing chain: premium (cost of coverage), deductible (amount paid before benefits), coinsurance (your percentage after deductible, often 20%), copayment (flat dollar amount for a service), and out-of-pocket maximum (the cap on cost sharing). Waiting/probationary periods delay benefits; pre-existing condition clauses are prohibited for major medical under the ACA but may appear in other products.
Plan types
Indemnity plans pay a percentage of covered charges with no network. Managed care: HMO (network only, primary care gatekeeper, referrals), PPO (network savings, out-of-network allowed at higher cost), POS (hybrid with gatekeeper), EPO (network only, no gatekeeper). Consumer-directed plans pair a high-deductible plan with an HSA.
Other coverages
Disability income (typically 50–70% of income, after an elimination period; own occupation vs any occupation definitions), long-term care, accidental death and dismemberment, critical illness, hospital indemnity, dental and vision.
Regulation touches
ACA: guaranteed issue, no annual/lifetime dollar limits on essential benefits, dependent coverage to age 26, essential health benefits and metal tiers. HIPAA provides portability and privacy; COBRA provides continuation.
Traps
- Coinsurance is a percentage; a copay is a flat dollar amount.
- A deductible resets each benefit period; premiums never count toward it.
- HMO services outside the network are generally not covered except emergencies.
- Short-term medical plans are not ACA-compliant: they can exclude pre-existing conditions and decline applicants.
Worked example
$2,000 deductible, 80/20 coinsurance, $6,000 out-of-pocket max. A $10,000 covered claim: you pay $2,000 deductible, then 20% of the remaining $8,000 = $1,600. Total $3,600, under the maximum, so the insurer pays $6,400.