Health Insurance 101

Understand how to get the coverage you need and can afford.

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Stethoscope on a Calculator

Health insurance is among the more complicated types of insurance coverage. In the United States, an unexpected medical bill can easily cut through any savings you’ve stashed away. To protect your health — and finances — learn about how health insurance works and available policies and plans when comparing your options.

How does health insurance work?

Unlike other insurance, you may pay deductibles, copays, and out-of-pocket costs in addition to the monthly premium for your health insurance.

Whenever you visit the doctor or go to the hospital, you may pay a copay as specified in your policy. When the total cost of services and treatments you’ve received under your plan — minus copays — hits your annual deductible, your coinsurance kicks in. In that situation, your insurer starts paying a larger portion of your bills, usually 60% to 80%.

You’ll keep paying copays or coinsurance until you reach your plan’s out-of-pocket limit. At that stage, your insurer pays 100% of your medical bills for the remainder of the year your policy is in effect.

The cost structure of health insurance policies can vary wildly. Your policy may have low premiums and high deductibles and out-of-pocket limits, or vice versa. Carefully read the details of your health insurance plan to avoid unexpected costs.

Key health insurance terms

Learn these key terms when comparing health insurance plans or analyzing your own:

  • Premium. The fee you pay each month to maintain your coverage. If you have health insurance through your workplace, your employer may pick up part of the tab.
  • Copay. A set rate you’re charged for specific healthcare services. For example, you might have a $30 copay every time you see your primary care doctor and a $500 copay for emergency room visits.
  • Deductible. The amount of money you’re responsible for paying before your health insurance kicks in to cover a larger chunk of your medical bills. Let’s say you have a $1,000 deductible — this means you’ll cough up a cumulative $1,000 for your health care on your own before your insurer steps in.
  • Coinsurance. After you’ve reached your deductible, coinsurance is the percentage of your medical bill you’ll pay — and your insurer pays the rest. For instance, if you have a 30% coinsurance, you’ll cover 30% of each bill, and your insurer pays the remaining 70%.
  • Out-of-pocket maximum. The highest dollar amount you will pay in a year, out of pocket, before your health insurance provider covers 100% of your medical bills.
  • In-network. The doctors, clinics and hospitals that accept your insurance. When you see an in-network provider, your rates typically are lower, and any costs for your visit count toward your deductible and out-of-pocket limit.
  • Out-of-network. The doctors, clinics and hospitals that won’t accept your insurance. If you visit an out-of-network provider, you might cover a significant portion of the costs yourself — or even the whole bill.

How to get health insurance

You can sign up for health insurance through employers, state-sponsored marketplaces, private providers and the government.

With health insurance, you typically buy, cancel or adjust your coverage during an “open enrollment” period. The timeframe varies between plans, but the dates remain the same from year to year.

Type of health insuranceOpen enrollment period
Employer-sponsored health insuranceIt depends on your employer, but generally between October and December
Marketplace and individual policiesNovember 1st to December 15th

Six states and DC offer longer open enrollment periods:

  • California — October 15 to January 15
  • Colorado — November 1 to January 15
  • Massachusetts — November 1 to December 23
  • Minnesota — November 1 to December 23
  • Nevada — Open enrollment is year-round.
  • New York — November 1 to January 31
  • Washington, DC — November 1 to January 31
MedicareOctober 15th to December 7th
MedicaidNo open enrollment period applies

Get insured through an employer

Under the Affordable Care Act, businesses with 50 or more employees must provide health insurance. If your company has fewer than 50 employees, it may still offer health insurance as part of your employee benefits.

Coverage might be more limited than that of an individual policy, but premiums are subsidized. While open enrollment period is generally in the fall, exact timing comes down to your employer.

Get insured on the Health Insurance Marketplace

Thanks to the Affordable Care Act, you can apply for a subsidized policy through HealthCare.gov. The site guides you to a state or federal marketplace, where you can browse for a policy that suits your budget and needs.

Depending on your income and household size, you might be eligible for a low-cost private plan with tax credits or cheap coverage through your state’s Medicaid program.
Open enrollment for marketplace policies lasts 45 days: November 1st to December 15th. Outside of this period, you can sign up for coverage if you have a qualifying life event.

Get quotes from private insurers

For customized coverage, consider signing up for an individual policy through a private provider. You can shop directly with providers, or enlist an agent or broker to help you get quotes and apply for a policy.

Like marketplace plans, the open enrollment period stretches from November 1 to December 15. When the 45 days are up, you can’t apply for an individual health insurance policy unless you have a qualifying life event.

Apply for Medicare or Medicaid

Medicare and Medicaid are two low-cost government programs that apply to different types of people.

Sign up for military-related health insurance

If you’re an active or retired military service member, you might be eligible for coverage through:

  • Tricare. Offered to active or retired military service members and their families by the Department of Defense.
  • Veterans Affairs coverage. Applies to veterans and retired military service members.

For more information on these policies, contact the relevant government department.

What is the Affordable Care Act?

Sometimes called Obamacare, the Affordable Care Act (ACA) is a healthcare law that dates back to 2010. It aims to expand access to health care at lower costs to improve quality of care for all Americans.

It’s a complicated law, but one that introduced six main takeaways:

  • Large businesses with 50 or more employees must provide health insurance.
  • Americans are eligible for subsidized policies through state or federal marketplaces.
  • Insurance plans are categorized into four tiers — bronze, silver, gold and platinum — which reflect the price and extent of coverage.
  • Insurers can’t deny coverage or set premiums based on gender or pre-existing conditions.
  • Children can stay on their parents’ health insurance plans until age 26.
  • All medical clinics and hospitals must use electronic medical records to help doctors and patients access records.

What is a qualifying life event?

A qualifying life event is a major life change — like getting married or having a baby — that allows you to buy or adjust your health insurance policy outside of the open enrollment period.

Qualifying life events include:

  • Loss of health insurance. For example, turning 26 and losing coverage on your parent’s plan, or no longer qualifying for Medicare or Medicare.
  • Changes in household size. Includes marriage, divorce, having a baby, adopting a child or losing coverage due to a family member’s death.
  • Changes in residence. Moving to a different ZIP code or country, going to college or changing work locations.
  • Other events. Becoming a US citizen, being released from prison or becoming eligible for Medicaid.

How much does health insurance cost?

It comes down to the policy. Private and marketplace plans tend to be the most expensive options, while employer-sponsored plans, Medicare and Medicaid can come with low or no premiums.

Through an employer

Employers often pay the bulk of the premiums — usually 70% or 80%. To put this into context, in 2018, the average annual premium for employer-sponsored health insurance was $6,715, according to the Kaiser Family Foundation. On average, employees contributed $1,427 toward the premium, and employers paid $5,288.

This is a breakdown of the average costs and contributions by state.

StateEmployee contributionEmployer contributionAnnual premium
Alabama$1,453$4,636$6,089
Alaska$1,154$7,728$8,432
Arizona$1,554$4,675$6,229
Arkansas$1,375$4,599$5,974
California$1,202$5,340$6,542
Colorado$1,289$4,966$6,255
Connecticut$1,672$5,592$7,264
Delaware$1,340$5,508$6,848
District of Columbia$1,369$5,861$7,230
Florida$1,472$5,202$6,674
Georgia$1,476$5,323$6,799
Hawaii$755$5,720$6,475
Idaho$1,199$4,976$6,175
Illinois$1,548$5,575$7,123
Indiana$1,383$5,395$6,778
Iowa$1,592$5,204$6,796
Kansas$1,255$5,007$6,262
Kentucky$1,633$5,057$6,690
Louisiana$1,584$4,953$6,537
Maine$1,461$5,405$6,866
Maryland$1,588$5,107$6,695
Massachusetts$1,903$5,540$7,443
Michigan$1,433$4,889$6,322
Minnesota$1,575$5,206$6,781
Mississippi$1,365$4,628$5,993
Missouri$1,403$5,261$6,664
Montana$1,115$5,747$6,862
Nebraska$1,388$5,463$6,851
Nevada$1,355$4,677$6,032
New Hampshire$1,618$5,787$7,405
New Jersey$1,598$5,909$7,507
New Mexico$1,558$5,066$6,624
New York$1,578$6,163$7,741
North Carolina$1,295$5,044$6,339
North Dakota$1,246$5,397$6,643
Ohio$1,632$5,172$6,804
Oklahoma$1,293$5,337$6,630
Oregon$1,601$5,380$6,441
Pennsylvania$1,351$5,418$6,769
Rhode Island$1,807$5,211$7,018
South Carolina$1,427$5,281$6,708
South Dakota$1,541$5,390$6,931
Tennessee$1,410$4,561$5,971
Texas$1,413$5,176$6,859
Utah$1,183$4,942$6,125
Vermont$1,456$5,463$6,919
Virginia$1,746$4,889$6,635
Washington$955$5,691$6,646
West Virginia$1,353$5,545$6,898
Wisconsin$1,596$5,220$6,816
Wyoming$1,385$5,394$6,779

Source: Kaiser Family Foundation

On the marketplace

When you shop on the marketplace, you might be eligible to lower your premiums with the help of tax credits. The subsidies vary based on state, income, household size and whether you or your spouse have health insurance through work. But typically, your household income must be between 100% and 400% of the federal poverty level to qualify for a premium tax credit.

In 2019, the average annual premium for marketplace plans was $5,736, according to the Kaiser Family Foundation. This is the state-by-state breakdown:

StateAverage annual premium
Alabama$6,552
Alaska$8,424
Arizona$5,652
Arkansas$4,536
California$5,268
Colorado$5,856
Connecticut$5,700
Delaware$7,776
District of Columbia$4,716
Florida$5,724
Georgia$5,844
Hawaii$5,916
Idaho$5,976
Illinois$5,736
Indiana$4,068
Iowa$9,144
Kansas$6,624
Kentucky$5,520
Louisiana$5,448
Maine$6,528
Maryland$5,028
Massachusetts$3,984
Michigan$4,596
Minnesota$3,912
Mississippi$6,252
Missouri$5,988
Montana$6,732
Nebraska$10,056
Nevada$4,920
New Hampshire$4,824
New Jersey$4,224
New Mexico$4,380
New York$6,828
North Carolina$7,416
North Dakota$5,484
Ohio$4,560
Oklahoma$8,352
Oregon$5,316
Pennsylvania$5,808
Rhode Island$4,032
South Carolina$6,624
South Dakota$6,684
Tennessee$6,576
Texas$5,328
Utah$6,504
Vermont$7,464
Virginia$6,660
Washington$4,872
West Virginia$7,152
Wisconsin$6,444
Wyoming$10,380

Source: Kaiser Family Foundation

Medicare and Medicaid

With Medicare, costs depend on the type of plan you choose and how much coverage you want. For the most popular plan — Part A: Original Medicare — your payroll taxes might pay for your policy in full. If you were in the workforce for fewer than 10 years, you might be charged a premium.

If you’re eligible for Medicaid, your coverage is likely free. But if you’re a “high earner” with an income at or above 150% of the poverty level, you may pay a small premium monthly.

What are the different types of health insurance plans?

Policies aside, a few types of plans determine how much control you have over your coverage. With HMO and POS plans, your primary doctor takes charge of your treatment, while you have more freedom to choose your own specialists with PPO and EPO plans.

Type of planDo you need to see an in-network doctor?Are referrals required for procedures and specialists?Best for
Health maintenance organization (HMO)Yes, unless it’s an emergencyYesThose who prefer a primary doctor to handle their care and choose their specialists.
Preferred provider organization (PPO)NoNoThose who want more provider options and can afford higher out-of-pocket costs.
Exclusive provider organization (EPO)Yes, unless it’s an emergencyNoThose who want lower out-of-pocket costs.
Point of service (POS)NoYesThose who prefer a primary doctor to coordinate their care, but also want to make the most of more provider options.

How to choose a health insurance plan

If you don’t have access to employer-sponsored plans, follow these steps to make sure you’re getting the best possible policy and premium on your own:

  1. If you decide to go with a marketplace or individual policy, narrow down whether you want an HMO, PPO, EPO, POS or HSA-eligible plan.
  2. Determine your budget and whether you want a low premium and higher deductible and out-of-pocket limit, or vice versa.
  3. Research and create a short list of insurers that include your doctor and local hospital as part of their provider network. If you don’t have a preferred doctor, look for a plan with a larger network so that you have more options.
  4. Get quotes from a handful of insurers.
  5. Compare policy premiums, out-of-pocket costs and benefits across plans.
  6. Ensure that your plan covers your prescriptions, specialists and any other treatments or medications you regularly need.
  7. Once you’ve found a policy that meets your needs, apply for coverage following the guidelines the insurer or marketplace gives you.

What’s an HSA?

A health savings account (HSA) is a tax-advantaged account that helps you pay for healthcare costs. If you’re enrolled in a high-deductible health insurance plan (HDHP), you can apply for an HSA.

In 2019, the IRS defines an HDHP as any policy with a deductible of at least $1,350 for an individual or $2,700 for a family and out-of-pocket expenses totaling no more than $6,750 for an individual or $13,500 for a family.

You decide how much money you want to contribute to your HSA account (up to government maximums) each year. These contributions are tax-deductible. You typically receive a debit card, and you can use the funds in your HSA account to pay for eligible medical expenses. This includes copays and coinsurance, but not premiums.

Frequently asked questions

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