What you'll learn:
➤ What is health insurance?
Health insurance is like a deal you make with a company.
You agree to pay them a certain amount of money every month, which is called a premium. In return, the company promises to help pay for your medical bills when you get sick or hurt.
This deal usually lasts for one year. During that time, the company will help cover the costs of things like doctor visits, hospital stays, and even some check-ups to keep you healthy.
But there are some important things to know about health insurance in the U.S. Here are the key points:
|Deductibles||Amount you pay out of pocket before your insurance coverage begins.|
|Co-Payments||Fixed fees you pay for specific services or treatments even after meeting the deductible.|
|Monthly Premiums||Regular monthly payments to maintain your health insurance.|
|Benefits of Health Insurance||Coverage for various medical expenses, including doctor visits, surgeries, and preventive care.|
|Affordable Care Act||Legislation since 2010 preventing insurance denials for preexisting conditions and allowing young adults on their parents’ insurance until age 26.|
|Government Programs||Federal health insurance plans like Medicare, Medicaid, and CHIP providing coverage for older individuals, low-income individuals, and children.|
Remember, health insurance is like a safety net for your health, and it’s important to understand how it works to make the most of it.
➤ How does health insurance work?
Health insurance in the United States can be quite complex. It’s like a puzzle with many pieces that can vary depending on where you live.
Employer Coverage: About half of Americans get their health insurance through their job. This means your employer helps pay for part of it, and it’s a nice perk. The money your employer puts in is tax-deductible for them, and the good news is that what you get doesn’t count as taxable income for you (except in some cases).
For Self-Employed and Freelancers: If you work for yourself or do freelance work, you’ll need to buy insurance on your own. Thanks to the Affordable Care Act, there’s a website called HealthCare.gov where you can find insurance plans offered by private companies. And if your income falls between 100% and 400% of the federal poverty level, you might get some help paying for it.
State Variations: Some states have their own versions of HealthCare.gov that are customized for their residents. It’s like having different flavors of ice cream in different places!
Medicare and Medicaid: If you’re over 65, have certain disabilities, or specific health conditions, you might qualify for Medicare. This is a government program that helps cover your medical expenses. For folks with lower incomes, there’s Medicaid, which can also provide assistance.
So, health insurance works in different ways depending on your situation. Whether you get it through work, buy it yourself, or have help from the government, the goal is to make sure you can get the care you need when you’re sick or injured.
➤ What are the different types of health insurance?
In the United States, health insurance comes in different flavors, and it’s important to know what you’re getting.
Managed Care Plans: These plans have networks of healthcare providers. If you go to doctors or hospitals within this network, your insurance pays a larger part of the bill. But if you venture outside the network, you’ll end up paying more, sometimes even the whole bill. Some common managed care plans include Health Maintenance Organizations (HMOs) and Point-of-Service plans (POS). With these, you usually need to pick a primary care doctor who manages your care, gives treatment advice, and refers you to specialists.
Preferred-Provider Organizations (PPOs): These plans don’t make you choose a primary doctor, and you don’t need referrals to see specialists. But they offer lower rates when you use in-network healthcare providers.
Preauthorization: Some insurance plans require you to get approval before they’ll cover certain services. For example, they might not pay for a specific treatment or medication unless they give the green light first. If there’s a more affordable generic version of a drug available, they might refuse to cover the pricier brand-name option.
All these rules should be laid out clearly in the information you get from your insurance company. It’s a good idea to check with them directly if you’re planning a significant medical expense to avoid any surprises.
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➤ Which health insurance terms should I know?
Understanding health insurance terms is crucial. Here’s what you need to know:
Deductible: This is the amount you have to pay each year from your pocket before your insurance starts chipping in. Thanks to federal law, there’s a limit to how high this can be.
Copays: These are fixed fees you pay for specific services like seeing the doctor or getting prescription drugs. Even after you’ve covered your deductible, you might still have copays.
Coinsurance: It’s a percentage of your healthcare bills that you pay, even after you’ve met your deductible. But, once you reach the yearly out-of-pocket maximum, you won’t have to pay more.
Plans with lower monthly premiums often come with higher out-of-pocket costs. When you’re comparing plans, think about whether you’d rather pay more each month or risk higher costs if you have a major medical issue.
If you’re self-employed, you might be able to deduct up to 100% of your health insurance premiums from your taxes.
➤ What are High-Deductible Health Plans (HDHPs)?
High-Deductible Health Plans (HDHPs) are gaining popularity. They have higher deductibles but lower monthly premiums. What makes them special is that users can open a Health Savings Account (HSA), which comes with significant federal tax benefits.
For 2023, the IRS defines an HDHP as having deductibles of at least $1,500 for an individual or $3,000 for a family. The maximum out-of-pocket costs are $7,500 for an individual and $15,000 for a family.
In 2024, an HDHP means deductibles of at least $1,600 for an individual or $3,100 for a family, with maximum out-of-pocket costs of $8,050 for an individual and $16,100 for a family.
The advantage? If you have an HDHP, you can contribute pretax income to an HSA, which covers qualified medical expenses. It’s like a triple tax benefit:
- Contributions are tax-deductible.
- Contributions grow tax-deferred.
- Qualified withdrawals for healthcare expenses are tax-free.
And, if you’re 65 or older, you can withdraw HSA money for any reason without a tax penalty, but you’ll pay income tax on it if it’s not used for medical expenses.
➤ Any Federal health insurance plans I need to know?
In the United States, health insurance isn’t just provided by private companies. There are federal health insurance plans designed to help specific groups.
Medicare, Medicaid, and CHIP (Children’s Health Insurance Program) are federal health insurance plans. They aim to extend coverage to older folks, disabled individuals, and low-income people.
The Affordable Care Act (ACA), signed into law in 2010 by President Barack Obama, made significant changes. It expanded Medicaid in some states, offering medical care to those with low incomes. The ACA also prevented insurance companies from denying coverage to people with preexisting conditions and allowed children to stay on their parents’ insurance plan until they turn 26.
The ACA established the federal Health Insurance Marketplace, where individuals and businesses can shop for quality insurance plans at affordable rates. These plans are required to cover 10 essential health benefits.
While the ACA originally required taxpayers to have insurance meeting certain standards or face a tax penalty, this penalty was removed after December 31, 2018, due to the Tax Cuts and Job Act.
In 2012, a Supreme Court ruling struck down the ACA provision that mandated states to expand Medicaid eligibility for federal Medicaid funding. Some states chose not to expand their Medicaid programs.
As of 2023, approximately 40 million people have health coverage through the Affordable Care Act.
Medicare and CHIP are two public health insurance plans. Medicare is for individuals aged 65 or older and also covers certain disabilities, End-Stage Renal Disease, and ALS. CHIP provides health coverage for low-income children under 19.
It’s important to note that Medicaid can help older seniors pay for long-term care in a nursing home, but Medicare does not. That’s why many Medicare recipients opt for supplemental coverage through a private insurer.
➤ Health Insurance: FAQ
What is health insurance, and why is it important?
Health insurance is an agreement between you and an insurance company. In this arrangement, the insurance company agrees to help pay for your medical expenses in exchange for a monthly payment called a premium.
Do I need health insurance?
The answer is simple: everyone does. Health insurance is like a safety net. It helps cover the expenses of minor health issues, as well as major ones like surgeries, treatments for life-threatening conditions, and ongoing medical care for chronic illnesses.
How do I get health insurance?
- If your employer offers health insurance as part of your employee benefits package, you will likely be covered, although you may still have to pay a portion of the costs.
- If you are self-employed, you can purchase health insurance through a federal or state Health Insurance Marketplace.
- People aged 65 and older qualify for federal Medicare insurance, though many of them supplement its coverage.
- Low-income individuals and families can receive subsidized coverage through federal Medicaid or Medicare programs.
How much does health insurance cost?
The cost of health insurance can vary widely based on the scope of coverage, the type of plan you have, the deductible, and your age when you sign up. Copays and coinsurance also add to your expenses.
You can get a good sense of the costs of plans by looking at the four levels of coverage offered by the federal Health Insurance Marketplace: bronze, silver, gold, or platinum. Each category is priced according to the level of coverage provided and their corresponding costs to the user.
➤ Health Insurance: Final Thoughts
In contrast to many other countries, the United States doesn’t operate a universal government health care system. Instead, it relies on a complex system of subsidies and tax incentives to make health care accessible to the majority of its citizens.
- If you’re employed, your health insurance is typically subsidized by your employer.
- If you’re self-employed, you can purchase insurance directly from a private insurer, with potential subsidies based on your income.
- Low-income individuals and families can receive subsidies to make health insurance more affordable.
- Elderly or disabled individuals can access coverage through federal programs like Medicare or Medicaid.
- U.S. Centers for Medicare & Medicaid Services. “Affordable Care Act Implementation FAQs – Set 18.”
- U.S. Department of Health and Human Services. “Fact Sheet: Celebrating the Affordable Care Act.”
- U.S. Census Bureau. “Health Insurance Coverage in the United States: 2021.”
- Internal Revenue Service. “Publication 535: Business Expenses – Deductible Premiums.”
- Internal Revenue Service. “Employee Benefits.”
- U.S. Department of Health and Human Services. “About the Affordable Care Act.”
- U.S. Department of Health and Human Services. “Who’s Eligible for Medicare?”
- U.S. Centers for Medicare & Medicaid Services. “Medicaid Eligibility.”
- Internal Revenue Service. “Publication 535: Business Expenses – Self-Employed Health Insurance Deduction.”
- Internal Revenue Service. “Rev. Proc. 2022-24,” Page 2.
- Internal Revenue Service. “Rev. Proc. 2023-23,” Page 2.
- Internal Revenue Service. “Publication 969: Health Savings Accounts and Other Tax-Favored Health Plans.”
- Internal Revenue Service. “Publication 969: Health Savings Accounts and Other Tax-Favored Health Plans – Reporting Distributions on Your Return.”
- Internal Revenue Service. “Individual Shared Responsibility Provision.”
- U.S. Library of Congress. “National Federation of Independent Business v. Sebelius, 567 U.S. 519 (2012),” Page 522-523.
- U.S. Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation. “Health Coverage Under the Affordable Care Act: Current Enrollment Trends and State Estimates.”
- U.S. Centers for Medicare and Medicaid Services. “CHIP Eligibility.”
- U.S. Centers for Medicare and Medicaid Services. “Long-Term Care.”
- U.S. Centers for Medicare & Medicaid Services. “The Health Plan Categories: Bronze, Silver, Gold & Platinum.”