Health insurance is an assurance of a more secure future health-wise, so individuals must have suitable health insurance.
According to statistics, medical costs have been rising each year. Inflation in medical-related costs is twice as high as inflation in other basic living commodities such as food, clothing, and housing. For anyone who doesn’t have much money to call himself/herself a millionaire, arranging funds at the last minute, especially when you or a loved one is seriously sick and requires urgent medical attention can be one of the hardest things you’ve ever indulged in.
That being said, one of the best ways to cater to medical emergencies and health-related issues is by taking health insurance. But what exactly is health insurance?
Health insurance is a form of insurance that normally covers medical, prescription drugs, surgical, and in some cases, dental expenses incurred by an insured individual. In addition to reimbursing the insured for the expenses incurred as a result of illness or injury, health insurance can pay the care provider of the insured directly.
In this brief but engaging article, we’ll take a look at health insurance, how it works, and the importance of having health insurance coverage.
How Health Insurance Works
Honestly speaking, receiving health care in the United States can be quite expensive. A single visit to the doctor can cost hundreds of dollars. Worst still, an average three-day hospital stay can cost you tens of thousands of dollars if not more. While this may depend on the type of care provided, many people cannot afford these costs, especially when they’re sick.
And because nobody knows when he/she might fall sick, become injured, or even how much care they might need, health insurance is a dependable and reliable solution. Simply put, health insurance is a superb way of reducing health care costs to more reasonable and manageable amounts.
So how exactly does health insurance work? Well, let’s get into the details. As the consumer or insured, you typically pay an upfront premium to a health insurance company. The premium or payment allows you to share the risk with several other people or enrollees who are making similar premium payments as you.
Fortunately, most enrollees are healthy most of the time. This means that the premiums paid to the insurance company can cover health expenses for any enrollee who falls sick. The idea here is that a relatively small number of enrollees fall sick or get injured so it’s easy for the insurance company to cover their expenses.
Again, the insurance company has extensively studied the risk and the main aim is to collect enough premiums to cover the medical costs of the enrollees. There are also several types of health insurance plans. They all come with varying rules, arrangements, and benefits. This means that you have the flexibility of choosing what works for you and within your budget.
The Importance of Health Insurance (Why You Need Health Insurance)
One of the most important reasons why you need health insurance is to enable you to afford the high costs of healthcare in the country. Unless you’re extremely wealthy, very poor, or aged over 65, you seriously need health insurance.
You certainly do not need health insurance if you’re very wealthy and can afford the cost of health care even when faced with chronic medical care or serious medical emergencies. Again, you may not need health insurance if you’re aged 65 or older and qualify for Medicare. Similarly, you may not need health insurance if you’re very poor and can qualify for Medicaid.
So if you do not fall into any of the above-mentioned categories, you must purchase health insurance or face the risk of medical bankruptcy. In essence, health insurance is perhaps more important than a car or home insurance. It’s meant to protect your life savings and assets from the overwhelming costs of medical emergencies, major accidents, or chronic diseases.
Simply put, health insurance gives you the chance of accessing health care whenever you fall sick or gets injured. You can’t compare it with other types of insurance, for example; car insurance. With car insurance, you can choose to use other modes of transport if you do not have car insurance until you’re able to afford one.
But if you get sick, you can’t wait to save enough money to visit a doctor. In other words, health insurance offers you the peace of mind and security of being able to afford and visit a doctor whenever you require medical attention.
Health Insurance Definitions
Health insurance can be a quite complex subject. Here are some of the most important definitions that you need to know.
Premium – This is the amount of money that you pay per month for your health plan. You should keep in mind that lower premiums often come with higher deductibles and out-of-pocket maximum.
Deductibles – The amount of money that you pay annually before your health insurance plan begins to pay.
Copayment – A small but flat-rate fee that you pay to get some health care services such as a visit to the doctor. You have to keep in that some health insurance plans do not require copayment but the premiums must be very high.
Coinsurance – The percentage of the cost you pay for the covered services. For example, you may be required to pay a given percentage of the hospital stay cost. In most cases, you may be required to pay 20% while your health insurance plan covers the remaining 80%.
Covered Costs – This basically refers to the cost of services that your health insurance plan covers. They generally include office visits, medical tests, treatments, medications, and supplies. You should know all the services that your health insurance plan covers before signing up.
Health savings account – This refers to the pre-tax contributions you make to an HSA account. You can use this amount to cover some health care costs.
Formulary – This refers to a list of drug prescriptions that your health insurance plan covers. You may have to pay the full cost of a prescription drug that your plan doesn’t cover for. You have to remember that this cost doesn’t count toward your deductible or out-of-pocket maximum.
Out-of-pocket Maximum – This is the highest amount of money that you can pay for the covered services received.
Network – This refers to clinics, hospitals, doctors, pharmacies, and health care professionals who partner with the health insurance company to provide the required services to the insured individuals.
How to Choose Appropriate Health Insurance Plan
Believe it or not, health insurance can be tricky to navigate. It’s, therefore, important to know how to choose the right health insurance plan for you. Here are a few things to consider.
What Does the Plan Cover?
The Affordable Care Act (ACA) has ensured that there’s standardization in the benefits that health insurance plans offer. In the past, benefits could vary from one plan to the other. For instance, some plans offered drug prescriptions while others did not. That being said, you should ensure that the plan covers at least the following benefits.
- Emergency services
- Lab tests
- Prescription drugs
- Maternity and newborn care
- Preventive services
- Management of chronic diseases
- Rehabilitation services
- Outpatient care
- Mental health and substance abuse treatment
Where can I receive Care?
One of the most important ways that health insurance companies use to control their expenses is by offering the insured specific health care providers. This is why they partner with particular health care providers that agree to provide services to the insured at affordable prices.
As such, you should be well aware of where you can receive care and make sure that it’s appropriate for you. This is very important because you may not be covered if you want to use a network that’s outside your health insurance plan.
How much will the Plan Cost?
Of course, you have to pay for the health insurance plan and any care that you get. It’s, therefore, important to choose a plan that you can afford. It’s always advisable to pay larger premiums so that you minimize other costs such as coinsurance and copayment. The general rule of thumb is that the more you pay in premium, the less you pay when you need health care and this is the right approach.
To this end, the importance of health insurance can never be downplayed. Unless you’re extremely wealthy, aged over 65, or very poor, you need health insurance. It can help you afford various health care services when you fall sick or get injured.