Healthcare is not cheap. In fact, healthcare in the United States is one of the most expensive in the world. Thus, medical issues can be financially catastrophic and cause the death of a person’s financial goals. That’s why it is important to have a health insurance plan.
In this post, we will discuss the history of health insurance, how health insurance works, as well as types of health insurance. We will also look at some health insurance plans, and show you why a health insurance plan is an important aspect of your journey to financial independence.
Ready to learn more? Let’s get right into it.
What is Health Insurance and How Does it Work in the U.S.?
Health insurance is any program that helps to pay for medical expenses. It can be through privately purchased insurance, social insurance, or a social welfare program that the government funds. Other names for health insurance are “health coverage”, “healthcare coverage”, and “health benefits”.
According to The Commonwealth Fund 41 percent of working-age Americans – or 72 million people – have accumulated medical debts from 34 percent in 2005. In addition to the 7 million elderly adults also having medical bills to pay up, a staggering total of 79 million Americans have medical bills or debt problems.
This is a depressing figure that shows the effect of a lack of health insurance. Apart from being uninsured, some people were underinsured, which means that the health plan they had was not adequate to pay up their medical expenses.
Health insurance protects you from debts that can come as a result of sickness or illness. To get health insurance, first, you need to get a health insurance plan from a health insurance company. Then you will have to make regular payments (called “premiums”) to the company. The premium is usually paid every month.
When you do this, whenever you get hurt or have medical bills to pay off, the company will pay some, or all, of your medical bills.
History of Health Insurance
The United States’ healthcare insurance system is unique. It provides for a private, employer-based system. This means that government programs cover only some vulnerable groups, not every citizen and definitely not non-citizens.
Healthcare regulation and policy is complex, as the government wants to encourage private insurance while providing for the unemployed and elderly. Laws like the Social Security Amendments of 1965, Titles XVIII, and XIX of the Social Security Act have contributed to the development of public health coverage in the country.
Other policies that have contributed to the development of the health insurance sector are:
- Social Security Amendments of 1972,
- Health Maintenance Organization Act of 1973,
- The Consolidated Omnibus Budget Reconciliation Act of 1985,
- Health Security Act of 1993,
- Health Insurance Portability and Accountability Act of 1996,
- Balanced Budget Act of 1997,
- Medicare Prescription Drug,
- Improvement and Modernization Act of 2003,
- Patient Protection and Affordable Care Act of 2010
In 2010, the government passed the Affordable Care Act (ACA), also known as “Obamacare”. Obamacare had 3 primary goals. It aimed to:
- Make affordable health insurance available to more people;
- Expand the Medicaid program to cover all adults with low income; and
- Support innovative medical care delivery methods that are designed to lower the costs of health care generally.
Organizations like the American Medical Association, the American Association of Retired Persons (AARP), as well as large health insurance companies have influenced healthcare policies over time in the U.S.
Health insurance works the same way in Canada, like the U.S. It helps you pay less for medical care. You also have to pay the regular fee (premium) for coverage.
However, in Canada, there are 3 types of healthcare coverage. There is Universal healthcare, aka the provincial/territorial healthcare, which is funded by taxpayers. This covers the most basic healthcare and medical services for you as long as you provide a provincial/territorial health card.
There are also the Workplace benefits offered in the workplace that only help employees cover the cost of things that the provincial/territorial health care plans may not pay for.
Finally, there is personal health insurance. This helps people who don’t have group benefits (like workplace health insurance) to cover the cost of things that provincial/territorial health care plans may not pay for.
Types of Health Insurance in the U.S.
There are different types of health insurance plans. They include:
- Health maintenance organizations (HMOs)
- Preferred provider organizations (PPOs)
- Exclusive provider organizations (EPOs)
- Point-of-service (POS) plans; and
- Catastrophic Plan
Health Maintenance Organization (HMO) isaplan that has a network of healthcare providers and facilities through which it delivers all health services. Under an HMO, you may not have the freedom to choose any health care provider you wish. However, it comes with the least amount of paperwork compared to other plans.
Under a Preferred Provider Organization (PPO) plan, you may choose your healthcare provider. Also, you do not have to get a referral from a primary care doctor to see a specialist. You’ll pay more though if you’re going to doctors who are out of the health insurance company’s network of doctors.
With an Exclusive Provider Organization (EPO), you don’t have to get a referral from a primary care doctor to see a specialist. You can choose the doctor you wish to, although if you see a healthcare provider that is not in your plan’s network you will have to pay the full cost yourself unless there is an emergency.
A Point-of-Service Plan (POS) is a plan that gives you more freedom to choose your health care providers. You also get to choose a primary care doctor who coordinates your care and who refers you to specialists. Then with more money in your bank to cover the costs, you can even see doctors who are out of your insurance company’s healthcare network.
You can only go for a Catastrophic Plan if you are under the age of 30. With this plan, you get a range of benefits, including lower premiums, 3 primary care visits before the deductible applies, and free preventive care.
If you’re looking to get a health insurance plan, you must ensure that you go for the one that best suits your financial situation. You can choose to buy from your state’s marketplace or from an insurance broker. These plans have different offers under them.
Each offer has different benefits and covers the medical costs to different degrees. The deductibles – the amount you pay before your plan covers 100% of your medical bills – of each offer are also different.
Each type of health insurance care also has Copays and/or Co-insurance. A copay is a flat amount that you pay when you get medical care. The fee may be as small as 15 Dollars. Coinsurance is a health insurance plan that makes you pay a specified percent of the medical bills. Of course, these charges vary according to your chosen health care plan.
When you buy health insurance, you get to choose a primary care provider (PCP), who is a health practitioner. Your chosen PCP should be a part of your insurance company’s network, and you will get the most care from them.
Bottom Line
Health insurance can be the most important piece of your financial puzzle. Accidents and illnesses can occur at any time. You may be unable to predict when they will happen but you can stay prepared for them. With health insurance, you can save yourself from bearing the cost of medical bills which could run into thousands of dollars.
There are many good health insurance options available whether you’re working, retired or self-employed. At the Art of Financial Planning, we can help you make the best choices when it comes to preparing for the future.
Let’s work together to save your finances from medical debts and unnecessary costs. Your financial future depends on it. Join us today.
