Thomas J. Catalano is a CFP and Registered Investment Adviser in the state of South Carolina, where he founded his own financial advisory firm in 2018. Thomas' knowledge allows him to advise clients on investments, retirement, insurance, and financial planning.
What Is Health Insurance?
A contract for health insurance is made between a corporation and a consumer. In exchange for a monthly fee, the corporation promises to pay all or part of the insured person's healthcare bills.
The agreement is typically for one year, during which the insurer is liable for paying certain expenses relating to illness, injury, pregnancy, or preventative treatment.
In the United States, health insurance contracts typically include coverage exceptions such as:
Important Takeaways
How Health Insurance Works
Health insurance is difficult to understand in the United States. It is a business with a variety of regional and national competitors, and its coverage, pricing, and availability vary by state and even county.
Approximately half of the population has health insurance as an employee benefit, with the employer covering a portion of the premiums.
The expense to the employer is tax-deductible to the payer, with some exceptions for S corporation employees, while the benefits to the employee are tax-free.
Self-employed, freelancers, and gig workers can obtain their own insurance. The Affordable Care Act of 2010, sometimes known as Obamacare, mandated the creation of HealthCare.gov, a countrywide database that allows users to look for basic plans from private insurers that are available in their area.
The expenses of the program are subsidized for taxpayers with incomes ranging from 100% to 400% of the federal poverty line.
Some, but not all, states have constructed customized versions of HealthCare.gov for their populations.
People over the age of 65, as well as those with disabilities such as end-stage renal disease Renal disease, or ALS, qualifies patients to receive federally subsidized care through Medicare, while families whose incomes are near the poverty level are eligible for subsidized Medicaid coverage.
Types of Health Insurance
Health insurance may be tough to comprehend in the United States.
Managed care insurance plans require users to seek care from a pre-approved network of healthcare providers. Patients who seek care outside of the network must pay a higher percentage of the cost. The insurer may even refuse to pay for services received outside of the network.
Many Managed care plans, such as health maintenance organizations (HMOs) and point-of-service plans (POS), require patients to choose a primary care physician who will oversee their care, make treatment recommendations, and refer them to medical experts.
PPOs, on the other hand, do not require referrals but do charge lower fees for accessing in-network practitioners and services.
Health insurance may be tough to comprehend in the United States. Managed care insurance plans compel consumers to seek care from a network of pre-approved healthcare providers. Patients must pay a higher percentage of the cost if they seek care outside of the network. The insurer may even refuse reimbursement for services obtained outside of the network. Many managed care plans, such as health maintenance organizations (HMOs) and point-of-service plans (POS), require patients to choose a primary care physician who will oversee their care, make treatment recommendations, and refer them to medical experts. PPOs, on the other hand, do not require referrals but do charge lower fees for accessing in-network practitioners and services.
What Are Copays, Deductibles, and Coinsurance?
Most health insurance plans require their clients to pay a portion of their coverage expenses in several ways:
Monthly rates for insurance plans with larger out-of-pocket expenditures are typically lower. When comparing plans, consider the benefit of lower monthly payments versus the potential danger of big out-of-pocket spending in the event of a serious illness or accident.
Tip
If you are self-employed, you may be eligible to deduct up to 100% of your out-of-pocket health insurance premiums.
HDHPs are high-deductible health plans.
The high-deductible health plan (HDHP) is a type of health insurance that is becoming increasingly popular. These plans feature lower monthly premiums and higher deductibles. Their customers are the only ones who can open a large Health Savings Account (HSA). federal tax benefits.
For 2023, the IRS defines a high-deductible health plan as one that has deductibles of at least $1,500 for an individual or $3,000 for a family. Total out-of-pocket maximums are $7,500 for an individual and $15,000 for a family.
For 2024, a high-deductible health plan is one that has deductibles of at least $1,600 for an individual or $3,100 for a family. Total out-of-pocket maximums are $8,050 for an individual and $16,100 for a family.
High-deductible health plans offer a unique advantage in that if you have one, you're permitted to open—and contribute pretax income to—a health savings account, which can be used to pay for qualified medical expenses. These plans offer a triple tax benefit in that they:
Note
You can withdraw money from an HSA after age 65 for any reason with no tax penalty, but you will pay income tax on the withdrawal if the money is not used for qualified medical expenses.
Federal Health Insurance Plans
Not all health insurance in the US is provided by private companies. Medicare, Medicaid, and the Children's Health Insurance Program (CHIP) are federal health insurance plans that extend coverage to older, disabled, and low-income people.
The Affordable Care Act (ACA)
President Barack Obama signed the Affordable Care Act (ACA) into law in 2010. The act expanded Medicaid, a government program that provides medical care to low-income people in participating states.
The Affordable Care Act prohibits insurers from rejecting coverage for individuals with previous diseases and allows children to remain on their parents' insurance plan until the age of 26.
Aside from these modifications, the ACA established the federal Health Insurance Marketplace. It also forbids insurers from rejecting coverage for patients with previous diseases and enables children to remain on their parents' health plan until the age of 26. The Marketplace assists people and businesses in their search for quality insurance coverage at reasonable prices. There is insurance available through the ACA Marketplace that is required to cover 10 essential health benefits.
Through the HealthCare.gov website, shoppers can find the Marketplace in their state, if it has one.
Under the ACA, taxpayers were required to carry medical insurance that meets federally designated minimum standards or face a tax penalty, but the Tax Cuts and Jobs Act removed that penalty after December 31, 2018.
A 2012 Supreme Court ruling struck down an ACA provision that required states to expand Medicaid eligibility as a condition for receiving federal Medicaid funding, and a number of states chose to refuse to expand their Medicaid programs.
As of 2023, an estimated 40 million people will have health coverage through the Affordable Care Act.
Medicare and CHIP
Medicare and the Children's Health Insurance Program (CHIP) are two governmental health insurance programs that provide subsidized coverage for handicapped people and children. Medicare, which is available to those 65 and older, also assists people with impairments such as end-stage renal illness and ALS. The CHIP program offers health insurance to low-income children under the age of 19.
Important
Medicaid can help elderly people pay for nursing home care, but Medicare does not. This is why Medicare recipients frequently get additional coverage from a commercial insurer.
What Is Health Insurance, and Why Do You Need It?
In exchange for a monthly premium payment, an insurance company offers to pay for some or all of your medical expenses under a health insurance policy.
If you're young, healthy, and fortunate, your monthly premium may be higher than the cost of your insurance.
If you (or someone in your family) has or develops a recurring condition that requires treatment, is wounded in an accident, or develops a disease, you may incur medical expenditures that you cannot afford."