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Human Resources

What is health insurance?

Health insurance is a way to pay for health care. It protects you from paying the full costs of medical services when you're injured or sick. Just like car insurance or home insurance, you choose a plan and agree to pay a certain rate, or premium each month. In return, your health insurer agrees to pay a portion of your covered medical costs. Payments by your health insurance are typically based on discounts they negotiate with doctors and hospitals.

Please click on the link, Healthcare Insurance Definitions for any terms you're unware of the meanting to.

Each plan is different, but you can usually find a plan to cover preventive care, like doctor visits and screenings, as well as hospital visits, ER trips, and even prescription drugs. Some plans cover vision and dental, but you may need to purchase these plans separately.

Most people cannot afford to pay the high cost of health care on their own. That's where health insurance comes in. You pay a premium each month, and your insurer pays for a portion of the covered medical costs. The insurer may be able to negotiate better rates from the doctors and hospitals. So instead of paying hundreds of dollars in out-of-pocket costs for a doctor visit, or thousands for a surgery, you pay a lesser amount depending on your plan.

Many people think of health insurance as something you use when you're sick, but it's much more than that. You can take advantage of the preventive services your plan offers. By visiting your doctor regularly for check-ups and getting your recommended screenings, you're more likely to prevent more serious conditions later on. Plus, many health plans offer wellness programs and discounts on health products and services.

How does health insurance work?

When you become a member of a health plan, you're joining a group of people who have also chosen that plan. Insurers call it a risk pool because they measure the amount of risk associated with those people.

Some people are high risk because they are not in good health and likely to use a lot of medical services. Others are lower risk because they are healthy. And let's not forget unexpected illnesses or injuries that can happen to anyone.

The health insurer does lots of calculations to estimate how much money it will cost to cover the collective medical expenses for everyone in your plan. Each member of the plan pays a monthly rate, or premium.

When you need health care, you and your health insurer share the covered medical costs. Your plan outlines your out-of-pocket costs for each service — whether it's a copay, deductible, or coinsurance.

Some years you may require lots of medical services, other years you may need less, but the whole point of having it is so you can avoid paying the full cost of medical services on your own. If medical costs are exceptionally high, your health insurer may have to adjust rates from time to time.

Why Are Health Costs So High?

There's no one reason why health care costs so much. A lot of factors contribute to the high cost, such as:

Individual behavior. More than 75 percent1 of health care costs are due to chronic conditions. While some conditions are genetic, many chronic conditions can be prevented by making better lifestyle choices, such as eating healthy, exercising, limiting alcohol consumption, and staying away from tobacco.

Advances in medical technology. Finding new and better ways to treat illness and injury is a good thing, but the research and equipment can be costly.

Prescription drugs. The research and development of new drugs and treatments can be very expensive. And even when a more affordable generic equivalent exists, many people still opt for the more expensive brand version.

Aging population. As we get older, we need more medical attention.

Uninsured population. Hospitals and doctors are required to treat those without insurance, which means that those with insurance end up footing the bill.

Medicare and Medicaid payments. When payments to doctors and hospitals drop below what the care costs, health insurers are usually required to make up the difference.

Provider increases. While it's important for doctors and hospitals to receive fair and competitive compensation, sometimes their increases exceed the rate of inflation.

Fraud and abuse. Health care fraud and abuse not only threaten the quality and safety of care, but it's estimated they waste billions of dollars3 each year.

Fear of malpractice suits. Some doctors and hospitals use more intensive diagnostic testing to confirm diagnoses and reduce exposure to malpractice liability.