How Does Health Insurance Work?

What Are the Different Kinds of Health Insurance Plans?

When you sign up for health insurance, you may be able to choose from several health care providers and different types of insurance plans. Before you do, it's important to understand the concept of a provider network.

A provider network can be made up of doctors, hospitals, clinics, pharmacies and other service centers that the health insurance company either contracts with, employs or runs. Your health insurance plan might not cover any (or only cover part) of the cost if you receive care from out-of-network providers. However, there are generally exceptions for emergencies and urgent care.

Health insurance plans usually fall into one of the following types:

• Health maintenance organization (HMO): With an HMO, you'll be limited to in-network providers. You'll also have a primary care doctor who manages your care and provides referrals if you want or need to see a specialist.
• Point of service (POS): A POS also requires referrals from your primary care provider before it covers specialist visits. Unlike an HMO, a POS plan covers both in- and out-of-network providers, but you may still pay more for out-of-network care.
• Exclusive provider organization (EPO): With an EPO, your health coverage is limited to in-network (or "preferred") providers. You might need a referral to see a specialist, but that's not always the case.
• Preferred provider organization (PPO): The most flexible option, a PPO plan doesn't require a primary care doctor's referral to see a specialist and doesn't limit coverage to in-network providers. Although, as with a POS, costs could be lower with in-network providers.
• Public programs: There are also federal- and state-run health insurance programs that you may qualify for based on your age, health conditions, income or military service. These include Medicare, Medicaid, Children's Health Insurance Program (CHIP) and health care for veterans.

If you already have doctors, specialists or facilities you prefer, you may want to see which network or networks they're part of before signing up for a health insurance plan. Otherwise, you may need to switch medical service providers if you want your health insurance to help cover the cost.

The Costs of Health Insurance

There are several important costs associated with a health insurance plan:

• Premiums: This is the monthly amount you pay for your insurance plan. If you have an employer-sponsored plan, your employer may pay all or part of the premium. If you purchase health insurance through an ACA Health Insurance Marketplace, you may qualify for a tax credit that lowers your out-of-pocket expense.
• Deductibles: Your plan's annual deductible is how much you'll have to pay for medical services (not premiums) before the insurer starts covering part of the cost. However, most health insurance plans offer free preventive care and annual checkups from in-network providers even if you haven't reached your deductible.
• Copayment: The amount you pay for certain types of services, such as a doctor's appointment, specialist visit or prescription. Copays are often flat fees, such as $40 per visit, and they might not count toward your deductible.
• Coinsurance: The amount—often a percentage—that you'll pay for services once you reach your deductible. For example, if an X-ray costs $300 and your coinsurance for that type of service is 20%, you'll pay $60.
• Out-of-pocket maximum: The most you'll have to pay for medical care in one year, including copays, coinsurance and your deductible. Once you reach the maximum, your insurance will pay for all your covered costs for the rest of the year.

When choosing a health insurance plan, you may end up making trade-offs between the type of plan, premiums and other costs. For example, a PPO plan might be the most flexible, but it could also come with a premium that's higher than what would be charged for a comparable HMO or POS. In general, plans with higher premiums have lower deductibles, copayments and coinsurance amounts.

How to Get Health Insurance

You may be able to get health insurance through your employer, directly from the insurance company, through an agent or broker, or by purchasing a plan through Healthcare.gov or your state's Marketplace.

You can sign up for a new plan during open enrollment. For Medicare and Marketplace plans, this usually happens at the end of each year, but employers may set their own open enrollment periods.

There are also certain life events that qualify you for a special enrollment period, during which you can begin a new health care plan or make changes to an existing one. Commonly, this period lasts 60 days, and that's how long you'll have if you get your plan through the Marketplace, but it can vary. For example, some employers may give you just 30 days to make changes after a life event. Life events that can cause someone to qualify for this special enrollment period include:

• Getting married
• Having or adopting a child, or placing a child for foster care
• Losing health insurance because of a divorce or legal separation
• Moving
• Losing your current health insurance

In 2021, due to the coronavirus pandemic, the Marketplace is also providing a special enrollment period from February 15 to May 15.

Additionally, if you qualify, you can enroll in Medicaid and CHIP at any time, which may be a good option if you're unemployed, furloughed or had hours cut at work.

How to Save Money on Health Insurance

Health insurance can be expensive, particularly when you're looking for a family health insurance plan.

If your employer offers a health insurance plan and pays part or all of your premium, that may be the most straightforward way to save money. Some employers may also offer you a discount on your portion of the premiums if you participate in wellness programs.

Married couples can also save by getting their health care plan through one spouse's employer. Being added to a health care plan may cause one spouse to have more taken out of their paycheck to cover the additional coverage, but the other spouse's job may bump up their pay since they're choosing to decline health coverage benefits. It's common for couples to ultimately come out ahead financially in this scenario.

If you're buying a plan directly from a provider or through the ACA Marketplace, a broker may help you compare your options and find the best one. You may also qualify for a premium tax credit for ACA Marketplace plans, which can lower your out-of-pocket cost for premiums.

No matter how you purchase your insurance, you may be able to choose from several plans that differ in terms of their coverage amounts and premiums. All else being equal, choosing a plan with a higher deductible typically leads to lower monthly premiums, which could save you money depending on how much care you need in the coming year.

You could also save money on health care expenses by using a tax-advantage flexible spending account (FSA) or health savings account (HSA).

• An FSA is an employee benefit that lets you set aside pretax money for qualifying medical expenses. However, the account is managed and owned by your employer, and you may lose money if you don't spend what's in it before the end of the year.
• An HSA is portable, meaning you own the account and it's not tied to your employer. HSAs offer triple tax benefits, as you may get a deduction for the contributions, money can grow tax-free inside the account, and you don't have to pay taxes on withdrawals you spend on qualifying medical expenses. However, you need to have a high-deductible health plan (HDHP) to qualify for an HSA.

While neither of these will lower your health insurance premiums, they can lead to lower overall health care costs.

With costs and complexity in mind, you may be thinking of going without health insurance entirely, but that has serious risks. Without health insurance, you'll have to cover more of your medical expenses out of pocket. And while there's no longer a federal fine for not having health insurance, several states impose a penalty unless you qualify for an exemption. Not having insurance can even negatively affect your health, as those without health insurance are more likely to be hospitalized for preventable health issues and have a higher mortality rate than those with insurance, according to the Kaiser Family Foundation.

How Can Medical Bills Impact Your Credit?

Having a health insurance plan can save you money on medical expenses and help you better stay current on your bills. But you'll likely still have to pay for copays, coinsurance, deductibles and potentially out-of-network providers.

Unpaid medical bills won't appear on your credit reports until after they're sent to collections, which can happen once the bill is 60, 90 or 120 days past due. During this time, you'll hopefully be able to work out payment details with the provider and your insurance. Even after medical debt is sent to collections, the three major consumer credit bureaus (Experian, TransUnion and Equifax) wait 365 days before adding it to your credit report. Paid-off medical collection accounts do not appear on your credit report at all, nor do collection accounts for unpaid medical debts less than $500.

If you want to keep an eye on your credit, you check and monitor your Experian credit report for free.