What is Health Insurance + How Does It Work?

Cathy Jakicic
July 18th, 2019 June 13th, 2019 |
Read time: 6 minutes

Products mentioned in this blog post:

Find out if you qualify for temporary coverage for emergencies and hospitalization – Don’t go uninsured between major medical plans.

Get help with a high deductible health plan – Fixed, lump-sum benefits can be used however you wish.

Get help with the high costs of hospitalization – Fixed indemnity benefits may be paid per day, week, month, visit or event.

If you’re new to health insurance, or even if you’re not, it’s easy to get lost in the many details, options and opinions on the subject. It can be a lot to take in, but it helps to start with the basics.

What exactly is health insurance and how does it work?

Healthcare.gov defines “health insurance” like this:

Health insurance is “a contract that requires a health insurer to pay some or all of your healthcare costs in exchange for a premium.”1

  • A health insurer is, of course, a company that sells health insurance.
  • A health insurance contract is often referred to as a policy.
  • A premium is the amount you agree to pay to maintain your health insurance policy monthly, quarterly, semi-annually or annually.2

So, what does that mean for you? An insurance policy is supposed to reduce the financial impact of out-of-pocket medical expenses, especially relating to high-cost care and treatment for critical injuries and illnesses.

Do you need health insurance? Learn more about ACA-qualifying major medical insurance, or get a quote for a non-ACA or supplemental insurance policy.

Need Supplemental or Short Term Insurance?

Apply in 3 Easy Steps

  • Get a quote within seconds
  • Compare multiple plans
  • Finish application online

How health insurance works in 6 steps

1. Enroll and start your coverage

When you purchase health insurance, your policy will have an effective date when coverage begins. The date your coverage begins will depend on when you enrolled. During your coverage term you will receive benefits that typically include medical services and prescription drugs at a reduced cost to you.

For instance, if you signed up during the ACA open enrollment period in December of 2018, your coverage could begin on January 1, 2019. Policy terms are generally one year, so you’ll be covered until January 1, 2020. However, you can cancel your health insurance at any time.

When can you enroll in major medical insurance?

The open enrollment period for individual major medical health insurance coverage is typically from November to December for most Americans. However, it is possible to enroll outside of this period if you:

  • Experience a life event that qualifies you for a special enrollment period, like moving or having a baby;
  • Belong to a federally recognized American Indian tribe or are an Alaska Native Claims Settlement Act (ANCSA) shareholder, in which case you can enroll in a marketplace plan anytime;3
  • Qualify for federally subsidized health insurance through Medicaid or the Children’s Health Insurance Program (CHIP), in which case you can enroll year round if you qualify.4 Learn more about qualifying for Medicaid or CHIP.

2. Pay your premium

During the term of your insurance coverage, you must pay a premium to the insurance company to maintain your policy. If you fail to pay your premium by the end of the grace period, your policy may be cancelled and you will no longer have access to your plan’s benefits. Premium payments don’t count toward your deductible.

If your major medical premium is too expensive, you may have options. Find out what you can do if your ACA health plan is too expensive.

Are you looking for a lower-premium health insurance plan with less coverage? If you just want a plan for unexpected accidents or illnesses, without the ACA essential health benefits, consider applying for a short term medical policy. Your application has to be approved by the carrier before you can enroll; pre existing conditions are not covered. Your premium cost depends on the benefits you select.

A good way to find plan options and compare costs is to get a quick quote, then see if you qualify.

Get a Short Term Health Insurance Quote

3. Get to know your health coverage

When you sign up, your health insurance company will send you policy information – usually before your coverage begins. The information will probably include an ID card and other materials that explain your coverage, such as how to find out which healthcare providers are in your network, if applicable.

The ID card is proof of your coverage and you will need to present it when you receive medical care. It’s a good idea to read over this material to make sure you are familiar with all your benefits before you need them and that you understand what you purchased.

To learn more about common health insurance policy information, check out these resources:

4. Use your covered healthcare services

Particularly if you have a major medical plan, make sure to actually use benefits, like preventive care, that are part of your policy.

Learn more about ACA essential health benefits.

When you visit your doctor, whether for a checkup, preventive care or because of an illness, chances are you’ll be asked for a copay. Most, but not all, policies require copays.

5. Use your insurance

After your visit, your doctor will file a claim with your health insurance company for the services provided.

Your health insurer will send you an explanation of benefits. It is often marked “This is not a bill.” It will usually include the details of the charges for your care, the portion of your policy covers and the amount you will be responsible for.

Let’s say your visit cost $180. If the total represents a discount because you visited a doctor in your network, the explanation of benefits will usually state that.

If this visit was your annual checkup, it would have been 100% covered after the copay as one of the ACA’s essential benefits.5

But if you were there because you were experiencing flu symptoms, for example, you will probably be billed for the visit by your insurance company. If you’ve already met your deductible, your health insurance policy would likely cover a percent of that charge based on your policy’s stated coinsurance.

Learn more about coinsurance, copay and deductibles.
Learn more about deductibles and how they work.

6. Pay your portion of the bill

Once you get the bill for the medical services you received, follow the instructions provided by your insurance carrier in order to pay it on time and with an acceptable form of payment. Be sure you get a receipt of payment for your records. This is particularly important if you haven’t yet met your annual deductible amount.

Worried about medical bills resulting from preventive care? You may have options.

What kinds of health insurance can you buy?

Now that you know generally how health insurance works, let’s review a couple of common types of health insurance that you may consider enrolling in.

Major Medical

Major medical insurance is a comprehensive policy that helps pay for healthcare expenses ranging from preventive services to emergency care. The Affordable Care Act (ACA) requires all major medical plans to be guaranteed issue and include coverage for the 10 essential health benefits.

You can enroll in a group plan, for example, through your employer, or in an individual plan that you purchase on your own.

Learn more about major medical insurance and find out if it’s right for you.

Short term medical insurance

Short term medical insurance provides limited temporary benefits for accidents and critical illnesses when you’re between major medical policies. Short term insurance is not subject to the ACA, meaning it does not cover essential health benefits and is not guaranteed issue so you can be denied coverage. Because these plans provide less coverage monthly premiums are typically less than ACA plans.

Find out what short term coverage would cost you by requesting a quote.

Get a Short Term Medical Insurance Quote

Gap insurance

Gap insurance can supplement a high-deductible major medical policy with lump-sum cash benefits you can use to pay your major medical deductible.

Get a Gap Insurance Quote

Hospital insurance

A hospital indemnity insurance policy will reimburse you for a percentage of the charges for covered medical services if you are hospitalized. You can purchase this to supplement your major medical insurance, and in some states, you must be enrolled in a major medical policy in order to purchase hospital insurance.

Again, a hospital policy is not subject to the ACA, so doesn’t cover essential health benefits and is not guaranteed issue. Find out if hospital indemnity insurance right for you.

Get a Hospital Insurance Quote

How to get health insurance

How you’ll be able to access health insurance depends largely on the time of year. See all your options if you need health insurance now.

Generally, your options are:

  • Enroll in major medical coverage during the annual open enrollment period.
  • Enroll in major medical during a special enrollment period – find out if you qualify.

You can shop for and enroll in major medical health insurance through the ACA marketplace at HealthCare.gov or via your state exchange.

Apply for a short term policy to get you to the open enrollment period if you don’t qualify for special enrollment.

Get a Free Short Term Insurance Quote Now

Summary + Next Steps

Health insurance can feel complicated and it’s easy to get lost in the many details, options and opinions on the subject. Now that you’re familiar with what health insurance is and how it works, it’s time to:

Want help understanding your options and obtaining coverage? Call 888-855-6837 to speak with a licensed agent, or find a local agent to work with.

Need Supplemental or Short Term Insurance?

Apply in 3 Easy Steps

  • Get a quote within seconds
  • Compare multiple plans
  • Finish application online
Originally Published On June 1st, 2016
Independence American Insurance Company, Madison National Life Insurance Company, Inc. and/or Standard Security Life Insurance Company of New York may underwrite the products referenced on this website. Legal Disclaimers.

Footnotes