Health Insurance Basics
Cost and risk
Health insurance pools morbidity risk-the chance of illness or injury and its cost. Premiums reflect expected claims, expenses, reserves, and profit. Cost-sharing tools include deductibles, coinsurance, copayments, and out-of-pocket maximums. A deductible is the amount the insured pays before benefits begin; coinsurance is a percentage split after the deductible; a copay is a fixed charge; the out-of-pocket maximum caps covered in-network spending. Networks control cost and access. HMOs generally require primary care coordination and in-network care; PPOs allow out-of-network care at higher cost; EPOs generally require in-network care; POS plans blend HMO and PPO features.
Managed care and renewability
Managed care uses utilization review, preauthorization, case management, and provider networks. Renewability provisions affect whether the insurer can cancel or raise rates. Guaranteed renewable policies must renew at the insured's option while premiums may increase by class. Noncancellable policies guarantee both renewal and premium. Conditionally renewable policies renew unless specified conditions occur.
Traps
Do not confuse the deductible with the out-of-pocket maximum. Coinsurance applies after the deductible unless the policy says otherwise. Network status matters: out-of-network care may have a separate deductible and higher coinsurance. A preexisting condition is not automatically excluded under every policy.
Rule of thumb
Read cost-sharing in order: premium, deductible, coinsurance or copay, then out-of-pocket maximum. Check network and renewal terms before comparing price.
Worked example
A plan has a $1,000 deductible and 20% coinsurance. A covered in-network bill is $6,000. The insured pays the first $1,000, then 20% of the remaining $5,000, or $1,000. Total cost-sharing is $2,000, subject to the out-of-pocket maximum.