How Health Insurance Works

Health insurance is a legal agreement between you and a health insurance company. That agreement includes a health plan that helps you pay for certain medical care and services, so you don’t have to pay all the costs on your own.

How does health insurance work?

Health insurance works to help lower the amount you would otherwise have to pay for high-cost medical care. This is typically how a health plan works, but they can vary:

• You pay a premium—usually monthly. This is a fee for having the health plan.
• Most health plans have a deductible. A deductible is how much you must pay out of pocket for care until your health plan kicks in to share a percentage of the costs.
• Once you meet your deductible and your plan kicks in, you start sharing costs with your plan. For example, your health plan may pay 80% of your medical costs and you may pay 20%. This is called “coinsurance.” Most insurance ID cards show your deductible and coinsurance.
• Preventive care is typically covered 100%. This includes things like your annual check-up, a flu shot, vaccinations for kids, certain wellness screenings, and more. (Some plans may require a copay—a small fee you pay at the time of the doctor visit).
• You save money when you stay in-network. Network providers agree to give lower rates to the insurance company’s customers. You can usually find a list of network providers on your health insurance website, or by calling and asking them for a list of in-network providers. This is a key part of how health insurance works to help keep your costs low.
• Your health insurance may also come with extra no-cost programs and services. This may include health and wellness discounts for services and products, incentive programs where you can earn cash awards and other prizes for completing healthy activities, and more.

Learn more about deductibles, copays, and coinsurance

How do you get health insurance?

Your employer may offer you a health plan as part of your job. They work with the insurance company to design the health plans they offer you. Your employer may also choose to add certain programs and services to your benefits, as well.

If you don’t get a plan through your employer, you can buy one on your own through a state or federal health exchange. You can also buy one directly through a health insurance company, like Cigna. You’ll find a variety of plan options to help meet your specific needs.

What does health insurance cover?

Health insurance plans may cover a wide range of medical care and services. These often include preventive and non-preventive care, as well as emergency care, behavioral health, and sometimes vision and hearing.

What you pay out-of-pocket and what your plan helps pay for can depend on a number of factors. These factors include whether you’ve met your deductible, what your coinsurance is, if you are getting care from in-network providers and facilities, if your care is preventive or not, and more.

Here are examples of health insurance benefits your plan may cover:

• Preventive visits: Things like an annual check-up (adult or child) are typically covered 100%.
• Vaccinations: Some vaccinations are covered 100%, too. For example, many plans pay for an annual flu shot and certain kinds of childhood vaccinations.
• Non-preventive doctor visits: For in-network doctors and specialists, you get a reduced rate as part of the network. Your plan helps pay its share of the cost once you’ve met your deductible.
• Hospitalization: Your plan helps pay its share of the cost once you’ve met your deductible. You will pay less if you go to a hospital that’s in your plan’s network, if required.
• Emergency Room: Many health plans do not require you to go to an in-network ER in an emergency, but plans can differ.
• Lab work: If you go to an in-network lab, your costs for lab work will be lower. Your health plan negotiates lower rates with them, too.
• Additional, or supplemental coverage that’s added to your health plan: Coverage for cancer care, accident coverage, and more can help you pay for care that’s often costly and unexpected.  

What does health insurance not cover?

What’s not covered by health insurance can also vary depending on the plan. Here are some types of services that are not typically covered:

• Alternative medicine: Such as massage, acupuncture, herbal healing, and more.
• Cosmetic surgery: Things like plastic surgery, laser skin removal, liposuction, rhinoplasty (nose job), etc.
• Weight-loss surgery: Gastric bypass and bariatric surgery may not be covered. This depends on the plan you get, though. Some procedures may be covered if medically necessary, so check your plan documents carefully.
• Vein surgery: Laser surgery to correct spider veins is often considered cosmetic and may not be covered unless a doctor can show it’s medically necessary.
• Elective surgeries: Especially surgeries that a doctor cannot prove a medical need for.
• Unapproved medical care: If you fail to get a required prior authorization for care or a service, your health plan may deny you coverage. Prior authorization is pre-approval from your health insurer. Many health plans require this type of pre-approval for certain types of procedures or treatments.
• Experimental treatments or procedures: For example, surgeries that use new technology or methods that may not have proven outcomes.

Your Summary of Benefits Coverage (SBC) document that comes with your health plan will itemize the care and services covered, as well as what’s not covered. When you know how your health plan works, you are better able to avoid paying unnecessary out-of-pocket costs.

What are the benefits of having health insurance?

The benefits of health insurance include:

• Lower out-of-pocket costs for care since it’s shared with your health plan.
• $0 preventive care—annual check-ups, routine health screenings (mammogram, colonoscopy, cholesterol screening), and certain vaccinations are fully paid for by your health plan. This means getting routine care costs you nothing. If you had to pay for this on your own, you’d pay hundreds of dollars out of your own savings each year, or you might make decisions not to go to the doctor, with possible impacts to your own and your family’s health.
• Coverage for unexpected costly medical care, such as hospitalization and care for a serious illness like cancer, or in the event of an accident or serious injury. That’s not to say there is no cost to you, but once you meet your deductible, your plan helps pay a large share of the cost. If you hit your annual out-of-pocket maximum (the most you need to pay in a year), then your plan starts paying for all of your care.
• Peace of mind—having a health plan may give you some comfort in knowing that there is a limit to how much you need to pay out of pocket for costly medical care. In addition, since your health plan pays most preventive care, you can also have the peace of mind that you and your family can get all your routine care, with little to no additional cost. (Some plans may require a small copay at the time of a visit).

When should you get health insurance?

Health insurance only works when you have it. Consider your lifestyle. Do you live risk-free or do you like to live life on the edge? Adventurous? Or a home body? Do you have a chronic health condition that requires treatment? Do you have a family to care for? These are things to keep in mind when considering whether you should get health insurance:

• If you are offered a health plan through your employer, you should get it. Your employer helps foot the bill for your medical care. Preventive care is usually at no cost to you—a big savings for you and your family.
• If you have a family to care for, consider the potential costs of not having health coverage for them. Would you be able to pay for even routine check-ups and screenings? With a health plan, you can have peace of mind that, in most cases, the plan pays 100% for most preventive care.
• If you would not be able to pay the costs for unexpected illness or injury you should get health insurance. If you’re wealthy and can manage to write a check for hundreds or even thousands of dollars, maybe you’re able to live without health insurance. But if you’re like most people, a major illness or accident is not an expense you can easily pay on your own.
• If you just need coverage in the event of a serious accident. If you don’t want to pay for a comprehensive health plan and feel you’re healthy and at low risk for illness or injury, you might consider catastrophic health insurance. These plans offer you a basic level of coverage in the event of a serious accident.
• If you’re between jobs, consider short-term health insurance to ensure you and your family are covered during any gap in normal medical coverage.

In general, how health insurance works is similar across plans, but depending on your needs, the details of your medical coverage can vary. Make sure to learn about your particular health plan or any plan you’re considering enrolling in.