Beginner’s Guide to Health Insurance

By Walecia Konrad · 7 minute read

Medical expenses can get very large very quickly, especially if you get sick, are in an accident, or have an ongoing health issue.

In fact, medical bills are one of the leading reasons why people go into debt and file for bankruptcy.

One way to help protect both your health and your financial well-being is to purchase health insurance.

While these plans also have costs associated with them–in the form of premiums, deductibles, copays, and other fees–buying coverage can often be worth the investment.

Finding the right plan for your needs and budget, however, can sometimes be daunting. And, if you’re shopping for health insurance for the first time, it may seem like these companies are speaking an entirely different language.

Fortunately, we’re here to help guide you through all the health insurance basics you need to know when shopping for insurance plans, whether it’s through the federal marketplace, an employer, or directly through an insurance company.

What Does Health Insurance Cover?

The Affordable Care Act (ACA), also known as Obamacare, made covering certain health care services a requirement for all health insurance plans available to consumers.

These required services are known as the 10 health essential benefits. These 10 categories of services include:

•  Ambulatory patient services (outpatient care that you can receive without being admitted to a hospital)
•  Emergency services
•  Hospitalization for surgery, overnight stays, and other conditions
•  Pregnancy, maternity, and newborn care
•  Mental health and substance use disorder services
•  Prescription drugs
•  Rehabilitative and habilitative services and devices (treatment and devices that help people gain mental and physical skills after an injury or chronic condition)
•  Laboratory services
•  Preventive and wellness services
•  Pediatric services, including dental and vision coverage for children

Different Types of Private Health Insurance

Unless you qualify for insurance administered by federal or state governments such as Medicaid, Medicare, and the Children’s Health Insurance Program (CHIP), you will be in the market for private health insurance, which refers to any health care plan offered by a health insurance company.
These options typically include:

Employer-Sponsored Insurance

Also sometimes referred to as “group insurance,” employer-provided health insurance plans are private plans purchased and managed by your employer.

Employer-sponsored plans need to follow the same rules as other private insurance plans and cover the 10 essential benefits listed above.

Because employer-sponsored health insurance covers a large group of people, premiums are generally more affordable than a comparable individual plan.

Plus, in many cases, employers cover a portion of your premium costs, which can make this option even more affordable.

Exchange-Based Insurance

While federal and state governments oversee the ACA exchanges, the insurance is offered through private health insurance companies. As a result, exchange-based coverage is considered private insurance.

Depending on your income, however, you may qualify for premium assistance through your state or the federal government when you purchase insurance through an exchange.

Exchanged-based insurance is divided into four metal tiers — bronze, silver, gold and platinum. The tiers do not necessarily reflect quality of service in the plans, but rather how much you’ll pay in premiums and other out-of-pocket costs.

With bronze plans, for instance, you’ll typically pay higher deductibles and copays but lower premiums. Platinum plans generally charge the highest premiums, but you’ll usually pay the least in out-of-pocket costs. Silver and gold tend to land somewhere in between.

Off-Exchange Insurance

This is a health care plan provided by a private insurance company that is sold separate from the exchanges. It may be purchased through an insurance broker or agent or directly from the insurance company.

Off-exchange plans must cover the 10 essential benefits and follow other rules dictated by the ACA–meaning you don’t have to worry about any loopholes or “gotchas” on off-exchange plans.

With off-exchange insurance, however, there are no government-funded premium subsidies. Also, insurers don’t have to offer a plan at every metal tier. They can offer just one type of health insurance plan.

Short-Term Health Insurance

Short-term plans are designed to provide temporary emergency coverage when you are between health plans or outside of enrollment periods.

Depending on what state you live in, short-term coverage can last up to 12 months, sometimes with the possibility of renewal for up to 36 months.

Short-term plans do not need to be ACA compliant. As a result, these plans do not have to provide essential coverage, most notably, coverage for preexisting conditions. Deductibles and out-of-pocket costs can also be significantly higher than traditional health plans.

Short-term health insurance may still be worth buying to cover a short coverage gap of one or two months if, say, you’re looking for a new job or a new job has a waiting period before your health insurance kicks in. Many large health insurers offer short-term options.

Understanding the Different Types of Plans

Whether you get insurance through your employer, through an exchange, or directly through a health insurance company, you will likely be able to choose between several different types of plans.

You’re also likely to encounter some confusing acronyms while shopping–like HMOs, PPOs, EPOs or POS plans. Understanding what these letters mean can be important, though. The kind of plan you choose can have a big impact on your out-of-pocket costs and which doctors you can see.

Here’s a rundown of the various forms of health insurance.

Health Maintenance Organization (HMO)

These plans generally limit coverage to healthcare providers who are under contract with the HMO.

You typically need to have a referral from your primary care doctor to receive care from a specialist or other provider in the HMO network. Care from providers out of the HMO network is generally not covered, except in the case of an emergency.

HMO plans typically have cheaper premiums than other types of private health insurance plans.

Preferred Provider Organization (PPO)

PPOs are typically less restrictive than HMOs when it comes to accessing your network of providers and getting care from outside the plan’s network.

You will likely have the option between choosing between an in-network doctor, who can you see at a lower cost, or an out-of-network doctor at a higher cost. Usually, no referrals are necessary to see a specialist.

PPO plans typically have more expensive premiums than HMOs.

Exclusive Provider Organization (EPO)

EPO plans are usually a mix between HMO plans and PPO plans.

EPO plans typically give you the option of seeing a specialist without a referral. However, EPO plans generally do not cover out-of-network physicians.

EPO plans tend to have more expensive premiums than HMOs, but may have less expensive premiums than PPOs.

Point of Service (POS)

POS plans are another hybrid of HMO and PPO plans. Plan members typically pay less for care from network providers. Like an HMO, you may need to get a referral from your primary care doctor to see a specialist.

POS plans typically have more expensive premiums than pure HMOs, but may have less expensive premiums than PPOs.

High Deductible Health Plan (HDHP)

This is a health plan that charges a high deductible (such as $1,400 or more for an individual or $2,800 or more for a family). This is what you would have to pay for health care costs before insurance coverage kicks in.

In return for higher deductibles, these plans usually charge lower premiums.

Often, you can combine a HDHP with a tax-advantaged health savings account (HSA). Money saved in an HSA can be used to pay for qualified medical expenses.

You can deduct HSA contributions from your taxes. Plus, earnings typically grow tax-free in the account and withdrawals used to pay for healthcare are generally not subject to federal taxes.

Catastrophic

These health plans are typically designed to cover only dire circumstances. These plans tend to have very high deductibles and lower premiums than other plans.

They can help if you get seriously ill or injured, but you’ll usually pay a large chunk out-of-pocket for all other healthcare costs.

Catastrophic plans on the exchanges are only available to people under age 30 and people of any age with a hardship or affordability exception.

Key Features That Determine How Much You Pay

When you shop for a health insurance plan, it’s important to know which features decide how much you’re actually going to pay for health care.

These out-of-pocket expenses can typically be grouped into five major features of your health insurance plan. These include:

Premium: This the amount of money you pay to your health insurance company each month to stay enrolled in your plan and keep your coverage.
Deductible: This is how much you need to pay for health care services out-of-pocket before your health insurance kicks in. Your plan may have a family deductible in addition to individual deductibles. You may want to keep in mind that the deductible and out-of-pocket maximum are two different things (more on that below). Plans with lower premiums tend to have higher deductibles.
Copayment: Often shortened to “copay,” this is a fixed amount that you pay for a specific service or prescription medication. Copayments are one of the ways that health insurers will split costs with you after you hit your deductible. You will pay copayments until you hit your maximum out-of-pocket amount.
Coinsurance: This is another way that health insurers will split costs with you. Unlike a copay, coinsurance usually isn’t a fixed cost. It’s typically a percentage of the cost that you pay for covered services. For example, if you have a coinsurance of 20%, you’ll pay 20% of the cost of covered services until you reach your out-of-pocket maximum.
Out-of-pocket amount maximum: This refers to the most you’d ever have to pay for covered health care services in a year. Payments made towards your deductible, as well as any copayments and coinsurance payments, generally go toward your out-of-pocket limit. Typically, monthly premiums do not count.

How to Buy Health Insurance

If you are employed and your benefits include health insurance, you may be eligible to buy coverage through your employer, either at your date of hire, during open enrollment season, or if you experience certain qualified changes of status such as a marriage or birth of a child.

Another option is to buy insurance through the exchanges at Healthcare.gov  . Here, you can also determine if you qualify for a premium subsidy. You may also be given the option of purchasing a plan through your state’s exchange.

You can sign up for exchange coverage during the annual open enrollment period, which typically runs from November 1 through December 15. (Some states have longer enrollment periods.)

In response to the COVID-19 pandemic, you may be eligible to apply for coverage through the federally run marketplaces through May 15, 2021.

Or, you may qualify for a special enrollment period, which allows you to purchase coverage at any time. Loss of employer-based insurance or a move to another state are examples of situations when you might qualify for a special enrollment period.

You can also buy private insurance plans directly from insurance companies. You can research individual and family plans on insurance company websites or work with an insurance broker who specializes in private coverage. Online insurance brokers are also a place to compare plans and prices.

The Takeaway

Health insurance can protect you from large medical bills should you or a member of your family experience an illness or accident.

You may be offered health insurance through your employer. Or, you might choose to buy health insurance through the federal health insurance marketplace, or directly from a private health insurer.

“When looking for a plan that fits your situation and budget, it’s a good idea to look at all costs involved–that includes deductibles, copays, and coinsurance, in addition to premiums.

Another consideration is the network of providers and other services each plan covers to make sure it fits with your health needs.

Even with health insurance, you will likely still be responsible for some of your healthcare costs, especially if you get sick or injured (and these costs could be high if you have a high deductible).

To make sure you can handle any unexpected medical expenses without hardship, it can be a good idea to set up an emergency fund within your cash management account.

While nobody likes thinking about how to protect their loved ones when they pass away, life insurance is another necessity to consider in addition to your health insurance plan. SoFi Protect and Ladder offer life insurance coverage that you can set up in minutes.