Understanding U.S. Health Insurance: A Basic Guide

Navigating the world of health insurance in the United States can be downright overwhelming! Between decoding all of the complex medical terms thrown your way, comparing plan premiums, and keeping track of open enrollment periods, there is a lot you need to understand when choosing a health plan. And how can you tell that you’ve picked the best coverage for yourself or your loved ones? 

Whether you’re choosing an individual health plan for the first time or reevaluating your current family plan coverage, this convenient guide will make the process simple. 

In this guide, you’ll learn some of the most important health insurance terminology, discover where to purchase health coverage, explore different plan options, and learn how to compare plans when shopping around.

Health Insurance Terminology

Health insurance policies often feel like they’re written in a foreign language, full of unfamiliar terms and medical jargon. But by learning a few key terms, you can make sense of it all and review your coverage options with confidence.

• Claim: A claim is a bill that you or your healthcare provider submit to your insurer for covered services. Each claim includes special medical codes that describe the care you received.
• Coinsurance: If your plan includes coinsurance, this is the portion of covered health services that you must pay. This amount is calculated as a percentage (such as 20%) of the total cost of service. You are responsible for paying your deductible plus any coinsurance costs.
• Copay: A copay is a set amount that you pay for a covered health service, like a doctor visit. You will usually pay this fee when you receive care.
• Deductible: If your insurance plan includes a deductible, this is the amount you will pay out-of-pocket before insurance starts covering your healthcare.
• Open Enrollment: For a few months each year —  typically in the fall — your insurer will have an open enrollment period. During this time you can sign up for a new health plan, make changes to your current coverage, or cancel your insurance. Making changes outside of open enrollment may result in penalties or require a qualifying life event, such as a job loss or marriage.
• Out-of-Pocket Maximum: Most insurance plans have a yearly out-of-pocket maximum. This is the maximum amount you are required to pay in a calendar year for healthcare under your plan. After you reach this amount, your insurer will cover 100% of the costs. This amount may include your deductible, copays, and coinsurance.
• Preauthorization: Your insurer may require preauthorization for certain tests or procedures. This means that, except in emergency situations, you must receive approval from your insurance company before receiving care.
• Premium: A premium is the amount you and/or your employer pay for your health insurance coverage. This can be paid monthly, quarterly, or yearly.
• Referral: Some types of insurance plans (HMOs) require a written order, called a referral, from a primary care provider to request a specialist visit or receive certain services. If you do not get a referral, your insurer may not pay for your care.

Getting Health Insurance

In the United States, there are several different ways to shop for a health insurance plan for yourself or your family. Depending on your situation, you may be eligible to get coverage through one of the following options: 

• From Your Employer
  Many workplaces offer health insurance options to both part-time and full-time employees. If you choose this route, your employer may pay part of your premium while the rest amount is deducted from your paycheck.
• Through Government Programs
  Government programs like Medicare, Medicaid, and CHIP provide low or no-cost coverage for specific groups:
  • Medicare: For individuals aged 65 or older or those with certain disabilities.
  • Medicaid: For low-income individuals and families.
  • CHIP (Children’s Health Insurance Program): For children in families that do not qualify for Medicaid but can not afford private coverage.

  Each program has separate eligibility criteria. To learn if you qualify, please visit the program’s website.

• Using the ACA Marketplace
  If you don’t have access to employer-sponsored insurance or want to explore other options, you may purchase coverage from the Affordable Care Act (ACA) Marketplace. Visit the ACA Marketplace to view several different health plan options. Depending on your income, you may qualify for subsidies to significantly reduce your costs.
• Other Options
  • Staying on a Parent’s Plan: Under the Affordable Care Act, most young adults may be able to stay on their parents’ insurance plan until their 26th birthday.
  • COBRA: If you’ve recently left a job, COBRA allows you to keep your employer-sponsored plan temporarily. However, you’ll be responsible for the full cost of the premium, including any portion your employer paid. 

Health Plan Types

Once you know where to shop for health insurance, the next step is selecting a plan type that fits your needs and budget. 

Whether you’re enrolling through an employer or the ACA Marketplace, you’ll likely encounter these common plan types:

• Health Maintenance Organization (HMO) Plans
  HMO plans require you to receive healthcare within a specific network of doctors and providers. You’ll select a primary care physician (PCP) to coordinate your care and refer you to specialists as needed. HMO plans typically don’t cover out-of-network care except in emergencies.
  
• Preferred Provider Organization (PPO) Plans
  PPO plans offer more flexibility than HMOs. With this type of plan, you can visit both in-network and out-of-network providers, though in-network care is usually less expensive. Unlike HMOs, PPOs don’t require you to choose a PCP or get referrals for specialist visits.
• Exclusive Provider Organization (EPO) Plans
  EPO plans combine key features of both HMOs and PPOs. Like an HMO, EPO plans limit you to in-network providers for coverage. However, these plans don’t require referrals for specialist visits.
  
• Point-of-service (POS) Plans
  POS plans also combine key aspects of both HMOs and PPOs. With this plan type, you’ll need to select a PCP who coordinates your care and provides referrals for specialists. However, POS plans allow you to visit both in-network and out-of-network providers for different costs.
  
• High Deductible Health Plans (HDHP)
  You may also be eligible to enroll in a HDHP. These types of health plans have lower monthly premiums but higher deductibles before insurance coverage begins. Often, HDHPs are paired with Health Savings Accounts (HSAs), which allow you to set aside pre-tax dollars for qualifying medical expenses like copays, prescriptions, and out-of-pocket costs. HSAs can help make HDHPs more affordable while offering tax benefits. 

Comparing Plans

Now that you’re familiar with some basic insurance terminology and understand the different types of plans that may be available, you can confidently compare coverage options.

Choosing the right insurance plan is a highly personal decision. Only you can decide the best coverage options for you or your family. However, there are a few things that you should consider when enrolling in coverage or renewing your health plan:

• Evaluate Your Needs
  Each year during open enrollment is a good time to reevaluate your family’s healthcare needs. Consider these questions:
  • How often do you visit the doctor?
  • Do you or any of your dependents take regular prescriptions?
  • Does your provider frequently refer you to specialists for care?
• Review Plan Costs
  When comparing different health plans, look at more than just the monthly premium. Consider each plan’s deductible, copays, and coinsurance if applicable. Expect to pay for these costs each year and choose the plan that best fits your budget.
  
• Check Networks and Coverage
  If you see a particular primary care physician or prefer certain hospitals, check to ensure these services are in-network for the health plan you are considering. You should also look for coverage of essential services like preventive care, mental health, or maternity care.

Navigating health insurance coverage in the U.S. may seem complicated. But, once you learn some basics, the process becomes much more straightforward. Revisit this guide during open enrollment or when choosing your next health plan to compare your options with confidence.

Sources: Healthcare.gov (1,2,3,4,5), Mass.gov (1,2), Blue Cross Blue Shield (1), United Health Care (1)