Health Insurance Basics
Risk and rating
Health insurance uses morbidity (rates of illness and injury) rather than mortality. Premiums reflect expected claims, expenses, and interest, adjusted for age, geography, and plan design. Adverse selection - sicker people buying or keeping coverage - drives underwriting, waiting periods, and enrollment rules.
Cost-sharing terms
A deductible is the amount paid before benefits begin. Coinsurance is the percentage the insured shares after the deductible (for example, 80/20). A copayment is a flat dollar charge per service. The out-of-pocket maximum caps the insured's annual spend on covered in-network care, after which the plan pays 100%. Preventive care is typically covered without cost sharing. Know the difference: coinsurance is a percentage, a copay is a flat amount, and the out-of-pocket maximum includes both but not the premium.
Networks and plan types
Indemnity plans pay a percentage and let members see any provider. HMO plans require a primary care physician, referrals, and in-network care except emergencies; they usually have the lowest cost. PPO plans allow out-of-network care at higher cost with no referrals. POS plans blend the two: a primary care physician coordinates care, and out-of-network care is allowed with a referral. Managed care tools include gatekeeping, utilization review, and case management.
Coverage frameworks
HIPAA sets portability and privacy rules. COBRA allows continuation of group coverage after a qualifying event. ACA marketplaces require guaranteed issue, community rating, coverage of essential health benefits, no annual or lifetime dollar limits, and dependent coverage to age 26. The federal individual mandate penalty was reduced to $0 beginning in 2019. Medicare covers those 65 and older or disabled; Medicaid covers low-income individuals.
Rule of thumb
On any cost-sharing question, compute in order: deductible, then coinsurance on the remainder, then check whether the out-of-pocket maximum has been reached.