How Health Insurance Works

Image © Richard Rudisill/Getty Images

Health insurance, also known as medical insurance, helps you pay for medical care like being in the hospital, having surgery, or seeing the doctor. Like any other type of insurance, you get medical insurance to protect you from risk.

Health insurance protects you from two types of risk:

  1. You’re protected from the risk of going broke due to medical bills if you get sick; your health insurance pays at least part of the cost of your medical care.
  1. You’re protected from the risk of not being able to get medical care because you don’t have enough money to pay for it.

How medical insurance works varies from country to country, sometimes even from region to region within a country, and from insurance policy to insurance policy.

How You Pay for Health Insurance

In some countries, you pay for your health insurance through your taxes. In other countries, it’s paid for by individuals, families, or employers paying monthly premiums to a health insurance company. Many countries use a combination of taxes and premiums to pay for medical insurance.

Who Provides Health Insurance?

In some countries, the health insurer is the government. Either the government actually provides medical care using funds collected for insurance, or the government uses the funds to pay private companies to provide medical care.

In other countries, private insurance companies provide health insurance.

In some of these situations, a health insurance company collects monthly premiums from people buying health insurance. It then uses those premiums to pay other private companies, hospitals, doctors, etc., to provide medical care to the people who bought health insurance. In other situations, a health insurance company uses the premiums to actually provide the medical care itself.

Some countries have both government-run health insurance and health insurance offered by private companies. For example, the government may provide basic health insurance for all of its citizens funded by taxes. This basic health insurance might pay for immunizations, maternity care, hospitalization, and simple doctor’s visits. In addition, private health insurance companies may sell health insurance policies that cover more than the government’s basic health insurance. People who buy these private medical insurance policies have both the basic government-run insurance and the additional benefits of private medical insurance.

Another example of government-run health insurance used in combination with private health insurance companies happens when a government provides basic health insurance to only certain groups of people and everyone else must buy health insurance from a private health insurance company. In this case, the government usually provides health insurance for vulnerable citizens such as the poor, the elderly, the disabled, and perhaps children.

Less vulnerable members of society are required to buy their medical insurance privately.

What Does Health Insurance Pay?

What, exactly, health insurance pays for, how much it pays, and whether health insurance pays for all or just part of your medical expenses varies from place to place and even from insurance policy to insurance policy.

In some instances, health insurance pays just a portion of the cost of medical expenses, while the person getting the medical care pays the rest of the cost. This is known as cost-sharing. In other instances, health insurance pays for all necessary medical expenses and the person getting medical care doesn’t pay anything toward the cost of that care.

What types of medical services are paid for varies from country to country and insurance policy to insurance policy. In some areas, what types of medical services an insurer must cover is a matter of law. In other areas, it’s determined by the insurance policy itself.

Whether covered benefits are determined by law or by each individual insurance policy contract, it’s very common that health insurance will only pay for medically necessary care. Health care that isn’t medically necessary, for example, breast implants to enlarge a healthy woman’s breast size for cosmetic reasons, won’t be covered by most health insurance policies.

Continue Reading