Health Insurance 101 – All You Need to Know


You are not expected to be a health insurance expert from the get-go. But since health insurance coverage is mandatory by law and you will have to deal with it for quite a while, knowing the basics is vital. Like with any other topic in life, knowledge is power! To help you handle your insurance coverage with confidence, we compiled this short health insurance 101 guide that covers the basic things you need to know.

What is Health Insurance?

Health insurance may sound straightforward, but if you try to define it or explain to somebody what it entails, it can get tricky. Plus, every country has its own healthcare system, all of which differ in many aspects. So, we are starting from the very beginning.

Health Insurance is the way that people manage their health care costs. Health insurance companies pay out benefits and collect insurance premiums. When we talk about health insurance, we refer to the plans that cover doctor bills, hospital costs, or surgery.

Just like home and car insurance, you pick a health insurance plan and pay a specific rate for that policy. In return, the insurance company covers a percentage of your medical costs for a predetermined list of covered services. There are covered services and exclusions, and you can find both listed in the policy brochure. Covered health services can include both treatments of injuries and illnesses and preventive care such as routine checkups.

Individual health insurance is a coverage you purchase on your own from an insurance company. Insurance policies can cover individuals, as well as families.

Why Get Health Insurance?

Why would one need health insurance if they are healthy? That’s a logical question. 

Here are the main reasons why you need one:

Be Prepared

Health insurance is a way to prepare for the unexpected. You never know when you might need medical help. Health problems that catch you unprepared can become a significant setback in your life. Healthcare services are expensive, so having quality insurance you can rely on will help you pay for the care when you need it.

Stay Healthy

Checkups will typically be covered 100% by health insurance. So, if you like to take preventive care of yourself, this is an excellent reason to get health insurance. There are many health benefits associated with routine visits. 

Avoid Penalty

If you don’t have qualified health care coverage, you may have to dip into your savings account and pay the penalty. According to the Affordable Care Act, it is mandatory to have health insurance. You may opt for the minimum essential coverage or pay the penalty on your federal tax return.

Make Better Decisions

If you are watching your budget, you may have skipped health insurance. You may make decisions about your health based on the money versus what you need and what’s best for your health.

Important Terms in Simple Words

There are thousands of different plans, health insurers, and health insurance products, but they all have something in common. 

The language of health insurance can be confusing at times. So, for you to understand the fine print and make informed decisions, it is a good idea to know what some standard terms mean. 

Before we look into the types of health insurance in more detail, let’s translate these terms into simple words.

Financial Terms

Premium – This term stands for the money you or your employer need to pay toward the health plan to be able to take advantage of its coverage.

Copay – This term stands for co-payment, and it refers to the money you must pay before your insurance covers a particular service. Imagine your copay is $45 to go to the doctor. Usually, you pay each time you receive a specific type of service.

Exclusion – This is a service that is not covered by the healthcare plan. You are usually expected to cover the cost of exclusions. Keep in mind that dental insurance isn’t typically covered by a medical health insurance company. Depending on your plan, your medical insurance may not cover general dentistry.

Coinsurance – This is part of the total cost you will have to pay. It is usually a percentage. For example, coinsurance on a surgery above a deductible is 80% of the cost covered by the insurer and 20% covered by you. 


Deductibles – The deductible is the money you pay out of pocket before the insurance company pays its part of the price. Imagine you have a $300 annual deductible. This means you have to pay this amount before the health services you use are covered by the insurance company. This may take several visits to the doctor before you reach the amount. Once reached, the company starts paying its share. You could have a low deductible or a high deductible. High-deductible health plans typically have lower monthly premiums.

Coverage limits – The coverage limit is the amount some health insurance providers will not exceed when it comes to covering health services. In some cases, you will be expected to pay the amount exceeding this limit. With some companies, the coverage is lifelong or shown every year. When a plan has a coverage limit, it will cease paying when you reach that limit, leaving you to cover the remaining costs. Typically, short term health insurance has these limits, while ACA plans don’t.

Out-of-pocket limit – The out-of-pocket maximum or limit is something like the coverage limit, but it is for you. You need to pay until you reach this maximum, and the health insurance covers all the costs that exceed it. This maximum can apply for a period or a specific category (e.g., the category of prescription drugs).

Health Insurance Types

Health insurance can include a lot of products, plans, and policies for covering different medical needs. Medical health insurance may include benefits for surgeries, accidents, or preventive care.

Let’s dive deeper into the main types of health insurance plans and see how they work.

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Short-Term Insurance

Short-term health insurance has been around for decades. We call it short-term because you purchase it for a fixed, predetermined period after which it expires. People often use them as transition plans. Although short-term plans are primary medical insurance, insurers can still reject an application due to pre-existing conditions.

Qualified Plan

A qualified health plan offers comprehensive health insurance coverage. You can purchase it during open enrollment through an employer or the health insurance market. The Affordable Care Act defines the benefits it provides and includes a provider network. If you choose this plan, you should know that your provider will not reject your application, no matter what your health history is. However, this plan comes with copays and deductibles.

Public Plans

Some of the most popular public health plans are Medicaid, Medicare, and CHIP (Children’s Health Insurance Program). These are plans supported and covered by the government, which created them for those who meet specific criteria, such as age, health status, or income. All of these can be long-term health insurance plans.

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The HSA or Health Spending Account refers to a medical plan which comes together with a tax-free health savings account used specifically for medical costs. With this plan, you will have high deductibles, but also high-quality protection, great flexibility, and lower monthly premiums. All this allows you to pay for certain medical expenses with money that is exempt from taxes. Another example of high-deductible health plans is catastrophic plans.

Benefits Insurance

The HBI, or Benefits Health Insurance, is a bit different than the plans we’ve mentioned above. It views health insurance coverage differently. With this insurance, instead of paying a percentage of your health expenses, the provider pays a benefit directly to you when you use a health service.

Student Insurance

Student health insurance is a plan offered by universities and colleges. It is different than other types of health insurance in several ways. The majority of college and university-sponsored insurance plans meet the ACA standard for essential health benefits. The nationwide medical network of facilities and doctors is available to insured students whether they are on campus or away for spring break.

Most students are healthy and young, so the risk for the insurance company is much lower. This means lower premiums for student insurance versus individual plans. Student health insurance may have some additional benefits, such as a global emergency service, assistance program, etc.

Some schools require student health insurance enrollment before students may attend classes.

Catastrophic Plan

These plans are often a great way to save money if you are a generally healthy individual. With low monthly premiums and high deductibles, they are ideal for people who want to be covered for emergencies and will not necessarily need frequent visits to their primary care physician.

Health Insurance 101

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How Does Health Insurance Work?

When you pick and pay for a health insurance policy, you become part of that health plan. That’s a group that insurance companies refer to as the risk pool. In this pool, you are with other people with lower or higher risk because of ongoing illness. Typically, the high-risk members of the pool will need more health care services compared to those with low risk. Low-risk members are healthy and don’t need medical services as often as the high-risk people.

Insurance companies look at everyone in the pool and calculate the amount of money needed to pay everyone’s medical costs. All members pay a premium, and the money is used to cover the medical expenses of the pool.

In return for your premium, the insurance company shares the cost of your (covered) medical services with you. Your policy provides the list of covered expenses, coinsurance or deductible, and the out-of-pocket expenses for each service. 

If you get your medical insurance through the employer, they will pay a portion of the cost. Some employers get discounted rates for their group of employees. Still, many workers don’t have access to a group insurance plan; others find the employer coverage not fitting their needs or budget. Of course, everyone still needs health insurance, so other options are available for them.

The insurer keeps track of the risk pool, and if they see a dramatic increase in medical costs for long periods, they will adjust the premium rates. This spreads the risk across all members of the insurance, so when one has an accident or needs surgery, the cost the insurer will pay is lower than that of the service covered.

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Where to Get Health Insurance?

The health insurance market is highly regulated, which means you will be purchasing insurance only from a specific source. 

Here are the most common ways to get health insurance:

From an Employer

Employer plans are prevalent options that are being offered to employees. You usually sign up at work during the open enrollment period. If you are eligible for an employer’s health plan, but you decide to purchase from the state marketplace, you will not qualify for subsidies or premium tax credits.

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From an Insurance Company

You can purchase a health insurance plan online or through a licensed insurance agent. You can apply for your health insurance anytime throughout the year.

From the Government

The Federal or State’s Marketplaces are also places where you can get a health insurance plan. You can sign up once a year when the enrollment period is open (or during a special enrollment period). Remember that if you are a tax dependent on someone else, you can still get health insurance on the State or Federal insurance market. However, you will not be eligible for subsidies or tax credits. The government views subsidies as income. Therefore, you are responsible to pay tax for them (for more information, check the healthcare gov official website).

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From School

Many universities and colleges offer student health insurance plans specially selected for their students. Student health insurance is a great option, so check if your educational institution provides one.

The Two Most Common Types of Plans


This abbreviation stands for Health Maintenance Organization. It delivers services through a network of hospitals, doctors, and other healthcare providers. With this option, you have less paperwork to worry about, but also less freedom to pick a provider. This plan covers a primary care doctor who refers you to a specialist when you need help.


Another common health plan is the Preferred Provider Organization. This type of health plan also relies on a provider network, which includes doctors and facilities that have agreed to charge a lower price for plan members. If you become a member, you have access to the list of providers which includes their name, contacts, and location. Of course, you can get care from a provider out of this network as well, but this will cost you extra. With Preferred Provider Organizations, you can directly visit a specialist without needing a referral.

Health Insurance 101

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Final words

If you are reading this, you already know the basics of health insurance. Now you have to choose a plan that best fits your needs. Your coverage options depend significantly on your life, health, and circumstances. Working? You should check what your employer offers for health insurance. Studying? Be sure to check the options of your college or university. Self-employed and may be tax independent? Individual health insurance is the best choice for you. If you are not working and looking for affordable health insurance – check out the State-Sponsored Plans.

Watching your budget? Make sure you don’t just go for the cheapest option. It’s crucial to pick an insurance plan that covers your health needs.

Once you have your health insurance needs clear, it is time to find the best provider. Check the quotes and coverage, then compare them based on what’s essential to you – it can be flexibility, low cost, extensive provider network, coverage, etc. Get some quotes and make sure you completely understand what each plan covers. Once you select a provider, you will obtain insurance.  

Getting health insurance is mandatory by law, but it’s also a responsible way to take care of your health and eliminate worries about unexpected medical bills.

What health insurance did you pick and why? Share your experience below with everyone who is looking for health insurance right now.

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