health insurance

What is health insurance and why do I need it?

Health insurance – also referred to as medical insurance or healthcare insurance – refers to insurance that covers a portion of the cost of a policyholder’s medical costs. How much the insurance covers (and how much the policyholder pays via copays, deductibles, and coinsurance) depends on the details of the policy itself, with specific rules and regulations that apply to some plans.

If you don’t have health insurance and you end up needing medical care, you can be left with insurmountable medical bills or even face situations in which medical providers refuse to treat you.

Only screening and stabilization in a hospital emergency department are guaranteed if you’re uninsured (and the hospital and providers can still bill you for the costs). Other than that, it’s up to the provider to decide whether to treat you if your ability to pay for the care is in question. Even if your out-of-pocket costs seem high under the health plans available to you, having a health insurance card might make the difference between being able to obtain care or not.

It’s also important to understand that you cannot just purchase health insurance when a medical need arises. Regardless of whether you’re buying your own coverage or enrolling in a plan offered by an employer, there’s an annual open enrollment period that applies, and enrollment outside of that window is limited to special enrollment periods triggered by qualifying events.

How does health insurance protect enrollees?

Having health insurance provides a safety net in case you end up with a serious injury or illness: All non-grandfathered, non-grandmothered major medical health insurance plans will cap your in-network out-of-pocket costs (a combination of copays, deductibles, and coinsurance) at no more than an amount determined by CMS each year, regardless of how high your medical bills actually get. For 2022, it’s $8,700 for a single person and $17,400 for a family, although many plans have lower limits (these upper caps increase to $9,100 and $18,200 in 2023).

Health insurance also helps with smaller expenses in the form of free preventive care (required on all non-grandfathered major medical plans; the enrollee does not have to pay a deductible, copay, or coinsurance for a service that falls within the list of recommended preventive care) and, depending on the plan, copays for things like office visits and prescription drugs. (If the plan has copays, it generally means you pay a certain amount for those services and the health insurance plan pays the rest of the costs, even if you haven’t met your deductible yet.)

Thanks to the Affordable Care Act (Obamacare), all non-grandfathered, non-grandmothered individual and small-group major medical plans include coverage for the types of care that are considered essential health benefits under the ACA, without any maximum cap on how much the insurance plan will pay for your care. (Large-group plans and self-insured plans are governed differently; they are not required to cover essential health benefits – although most of them do – but for any service they do cover that falls within an essential health benefit category, they cannot impose lifetime or annual benefit maximums).

What are the different types of health insurance?

There are several different types of health insurance in the U.S., including public coverage (Medicare, governed by the federal government, Medicaid and CHIP, governed by both the federal government and state governments, Indian Health Services, VA coverage) and private coverage.

Private healthcare coverage can be provided by an employer (group insurance, including both large-group and small-group plans) or purchased in the individual/family market. Members of the armed services and their families are covered under Tricare, and people employed by the federal government are covered under the FEHB (Federal Employees Health Benefits) Program.

Both public and private plans tend to use a managed care model (HMO, PPO, EPO, or POS plan, or sometimes a hybrid model), in which a private insurer will manage and oversee the provision of services, the quality of the care provided, the reimbursement system, the provider network, and rules such as prior authorization or step therapy.

In the individual/family market, all major medical healthcare plans with effective dates of January 2014 or later are governed by the Affordable Care Act and required to be compliant with its provisions, regardless of whether they’re sold in the exchange or outside the exchange. These plans all offer coverage on a guaranteed-issue basis, regardless of an applicant’s medical history. But coverage is only available during open enrollment (November 1 to January 15 in most states) or a special enrollment period triggered by a qualifying event.

There are still grandmothered and grandfathered plans in effect in the individual and small-group markets in many states (and grandfathered plans in the large-group market), but these plans have not been able to enroll new members – except for new family members or new employees on existing employer-sponsored plans – since 2013 or 2010, respectively.

There are also a variety of non-ACA-compliant healthcare plans available, although most of them are better suited to be supplemental coverage rather than stand-alone coverage. (For example, direct primary care plans and fixed-indemnity plans are not suitable to serve as a person’s only coverage). Short-term health insurance, which is available in most states, is designed to be stand-alone coverage, but only for a short period of time, and with the understanding that it can have significant gaps in the coverage.

How is health insurance regulated?

Health insurance is regulated at both the state and federal level. Some types of coverage, including Medicare and self-insured group health coverage, are subject to federal regulations (Medigap, which is sold to supplement Medicare coverage, is also subject to state regulations). Other types of coverage, such as Medicaid, small group health coverage, individual/family health coverage, and short-term health insurance, are subject to both state and federal regulations.

In each state, there’s an insurance commissioner and insurance department that oversee state-regulated coverage. At the federal level, the Department of Health and Human Services/Center for Medicare and Medicaid Services oversees regulations pertaining to Medicare, fully-insured group insurance, and individual/family insurance. The Department of Labor and Department of the Treasury oversee compliance with ERISA, which governs self-insured group plans.

Some products, such as Farm Bureau plans in certain states, direct primary care plans, and health care sharing ministry plans, are generally exempt from insurance rules and regulations.

How do consumers buy health insurance coverage?

If you don’t have access to coverage provided by an employer, you’ll need to obtain your own health insurance in the market for individuals and families. You can visit your state’s marketplace/exchange to see the options that are available to you and how much the monthly premiums would be. If you’re not eligible for premium subsidies (premium tax credits) or cost-sharing reductions (a subsidy that reduces your out-of-pocket costs, including deductible and coinsurance), you might want to also check with a broker to see if there are additional plans available outside the exchange in your area. (You can only apply premium tax credits to plans purchased in the exchange, and you can only get cost-sharing reductions if you buy a silver plan through the exchange; you can use this calculator to see whether you’ll be eligible for a premium tax credit.)

If you feel that you can confidently manage your own enrollment and health coverage, you can enroll on your own. But the services of brokers and enrollment assisters are available free of charge, and they can help you manage the process.

Depending on your income and where you live, your state may provide you with Medicaid coverage. If you’re eligible, your state’s marketplace will direct you to the application portal for Medicaid, and there are people available in your state who can help you complete the enrollment and answer any questions you may have.

If you’re eligible for Medicare and don’t have supplemental coverage provided by a current or former employer, you’ll also likely need to seek out supplemental coverage on your own, via Medicare Advantage or Medigap plus Medicare Part D.

Are Americans required to buy ACA-compliant health insurance?

There is no longer a federal penalty for going without health insurance, although residents in DC, California, Massachusetts, New Jersey, and Rhode Island do face tax penalties if they don’t maintain minimum essential coverage.

New Jersey is the only one of these areas where grandmothered health plans still exist (and in New Jersey, grandmothered plans only exist in the small group market), although grandfathered plans likely remain in effect in all of them. These plans are not fully compliant with the ACA, but they do count as adequate coverage in terms of avoiding a penalty for being without health coverage.

When can I buy health insurance?

If you need to buy your own health insurance, the annual open enrollment period runs from November 1 to January 15 in most states. But some state-run exchanges have different enrollment deadlines. Outside of the annual open enrollment period, you can still make plan changes – and in some circumstances, newly enroll – if you experience certain qualifying life events.

If you’re turning 65 (or have been receiving Social Security disability benefits for two years) and eligible to be automatically enrolled in Medicare, you’ll get your Medicare card in the mail about three months before you turn 65. And the annual open enrollment period for Medicare Advantage and Medicare Part D runs from October 15 to December 7 in every state.