OHA: What is Health Insurance?


What is Health Insurance


Health insurance is a complex part of the healthcare system in the United States.  But until significant, fundamental reform is adopted, health insurance will remain necessary.  In order to get the most out your insurance, you need to understand several key concepts, including, but not limited to:

  • What your healthcare needs are,
  • The different types of plans,
  • The terms associated with your plan,
  • How much you can afford to contribute towards the cost of your care, and
  • Your rights, under the law and under the terms of your policy.

It is important to remember that most plans will not cover all of your medical expenses and that, although there are some services that all plans must cover, how they are covered and what your responsibility is can vary from plan to plan.  This includes services that are required under the Affordable Care Act (ACA) to be covered 100%, with no co-pays, deductibles or co-insurance due from the member.

It is very important that you receive a copy of your Subscriber Agreement from the insurer, as that document, however lengthy, is the contract that specifies all of the terms of your coverage, as well as the responsibilities of all parties, including you and the insurer.

How does Health Insurance work?

Health insurance is a lot like your car insurance.  For example, everyone insured by 123 Auto Insurance pays some set amount, the premium, for a specific set of benefits and level of coverage.  If one member has an accident, the cost to repair that member’s car may be more than that member paid in premiums over the last year, or more.  But 123 Auto Insurance is receiving premiums from thousands of people, most of whom will not get into an accident or need to make a claim, so they can pay for the repairs from this pool of money that they’ve collected.  So, if the average premium paid by 123 Auto members is $1000 each year, and there are 10,000 members, then 123 Auto will receive $10,000,000 in premiums with which to run their business and pay for any claims.  This spreads the cost of insuring, or the “risk”, over a large pool of people who all share that risk since, if there are a lot of claims in a given year, the insurer will likely raise the premiums to cover the increased expenses or, if a person have an accident, may increase their premium, because they have shown that they are more likely to require the insurer to pay and are more “risky”.

Health insurance is very similar.  Fully insured plans (see Common Terms) operate in exactly the same way.  A health insurer will estimate how much the medical services its members will incur in the coming year will cost and, after adjusting for a variety of factors, and dividing by that estimate by the number of members, come up with an average cost per member.  The insurer can increase or reduce a member’s premiums based on a couple of additional factors, including where they live, their age, if they smoke and if they are applying as an individual or as a family.

Although only about 20% of members in any given plan will be responsible for about 80% of the healthcare expenses for the plan, most people will need medical attention at some point, sharing the risks and costs is beneficial for all members.

Another key element of health insurance was one of the founding premises of the ACA – ensuring that people have access to affordable healthcare when they need it and, ideally, before the medical condition for which they need treatment becomes critical, since delayed treatment becomes a problem for the patient both medically as well as financially.  The ACA’s emphasis on prevention, promoted in the requirement that numerous preventative screening services be covered without cost sharing, reflects the hope that people will be able to receive routine care and evaluations so that medical conditions can be identified before they get worse.  We know that regular maintenance of our automobiles helps to ensure that they run better, last longer and that any repairs that are necessary cost less.  The human machine is no different.  This can help us to avoid preventative illness and catastrophic medical expenses.

Content Last Modified on 9/15/2017 7:13:15 PM