Health Insurance

Health insurance covers the costs incurred due to medical treatment. In the United States, this type of coverage is usually provided by private health care providers. However, in some cases health insurance is provided by government-sponsored insurance programs.

A unique characteristic of health insurance is adverse selection. This is an industry term that is used to describe the tendency that only those who will benefit from health insurance usually buy it. If a person is unhealthy and expects to incur large medical bills they are more likely to purchase health insurance than an individual who only goes to the doctor once or twice a year. The second individual is more likely to consider health insurance unnecessary. They may choose to pay health costs out of pocket versus monthly premiums to a health insurance company.

Health Insurance versus Health Plan

These two terms are often used interchangeably, however their meanings differ. Health insurance covers costs associated with health care, minus any deductibles, up to a yearly and/or lifetime cap. A health plan typically pays for a fixed amount of health services. Examples of this type of benefit include up to $400 per year for preventive care, or a fixed number of hospital overnight stays per year.

Types of Health Insurance

Private health care is purchased by individuals. Most often in the United States, private health care is purchased by employers on behalf of employees. Employees generally pay a small percentage of the premium cost the employer pays.

These types of plans vary greatly. Employers choose how comprehensive of a plan they wish to offer to employees.

Public health care is purchased by governments for individuals. At the federal level, Medicare is paid for by the U.S. government and is available to all people age 65 and older, and certain other individuals who meet minimum criteria (usually being disabled).

Medicaid is paid for at the state and federal level. It is available to low income families. Although the program is jointly funded at the state and federal level, it is managed at the state level.