How Does Health Insurance Work?

Health insurance is an agreement between you and an insurance company of your choosing. You purchase the plan that best matches your healthcare needs, and the insurance company agrees to pay all or part of your medical costs when you get sick or hurt.


What are the costs associated with health insurance?

Most health insurance costs can be divided into three categories:

What are the different types of health insurance plans?

There are four types of traditional healthcare plans:

Features of the four traditional healthcare plans

PPO

EPOPOSHMO
PCP required

NONOYESYES
Referral required
to see specialist

NONOYESYES
Non-emergency “out-of-network” benefits

YESNOYESNO
Emergency coverageYESYESYESYES


High Deductible Health Plan (HDHP): Proactive healthcare with lower monthly costs

Traditional health plans promise comprehensive coverage, but monthly costs are typically expensive and benefits often go unused. At the end of the year, the money spent on premiums is spent and in the insurance company’s pockets. If you are not using your insurance benefits, your monthly premiums are funding other plan members’ healthcare services within your network.

A High-Deductible Health Plan (HDHP) is a plan with a higher deductible than a traditional health insurance plan. It shares many of the same structural features as a traditional healthcare plan, but it has some distinct differences. Your monthly premium is usually considerably lower, which means you get to keep more of your paycheck each month. In exchange, you are agreeing to have a higher deductible, so you will pay a greater amount of qualifying healthcare costs out-of-pocket before your insurance company starts to pay.

By definition, an HDHP is any plan with a deductible of at least $1,350 for an individual or $2,700 for a family. That means you pay at least $1,350 individually, out-of-pocket, before your health insurance begins covering your costs. Total yearly out-of-pocket expenses for in-network services (including deductibles, copayments and coinsurance) cannot exceed $6,650 for an individual or $13,300 for a family.

What are the benefits of HDHP?

An HDHP allows you to take an active role in your healthcare buying decisions. With a lower monthly premium, you have more choice, flexibility and control in how you spend your healthcare dollars. Some of the specific benefits of HDHPs include:

How an HSA differs from an FSA

An HDHP can be combined with a health savings account (HSA), enabling you to pay for certain medical expenses with money saved from your paycheck. HSA contributions are not subject to federal tax. Traditional healthcare plans do not permit HSAs, so the HSA option is a unique benefit to HDHPs. You are eligible to reserve $3,450 annually (pre-tax) for an individual and $6,900 (pre-tax) for a family to pay for qualified medical expenses, including your deductible. Unused HSA funds can roll over into the following year, allowing you to grow your account, tax-free, year after year.

HSAs are often confused with FSAs (Flexible Spending Accounts). FSAs are employer-established plans, so anyone who is not self-employed is eligible. FSAs are limited to $2,650 (pre-tax) per year per employer, and unused funds cannot be rolled over into the following year. FSA contributions can be used to pay for copayments, deductibles, drugs and other healthcare costs, but not for insurance premiums.