Health Insurance Basics


Health insurance covers the cost of health care. It saves people from the financial shock of an accident or contraction a serious disease, which can run high medical bills.

The importance of health insurance has seen more and more priority in recent years, mainly because costs medical services have dramatically increased in the 1980's to the early 1990's. In 1980, Americans spent an average of $247.3 billion on healthcare. In 1999, the figure to health care costs was pegged at $1.2 trillion. That's more than four times more in less than a 20 year expanse. You can just imagine how much it goes now.

A reason for this is longer life expectancy (76 years in the year 2000) and the fact that older people require more medical services than younger people. In 1994, there was an elderly person for every eight Americans. And when the elderly join a health-insured group, the health care risks and costs of the whole group rises considerably.

Technological progress in the field of medicine has also hiked up health insurance costs. Computerized Tomography (CT) scans, Magnetic Resonance Imaging (MRI) and other procedures in health care that were not available until recently have provided new and expensive ways to curing formerly incurable diseases.

Health insurance roughly works this way: a person who gets health insurance is relegated to a large group by the insurance company. He then "pays" for a part of the group's losses, attained by one or more members of the group collecting on their insurance, through making regular payments. In return, when he collects, the group pays for the losses he encounters. Health insurance companies assess the health care costs of a large group through each individual's risk factors and medical history.

Health insurance plans basically have four types: Indemnity , Preferred Provider Organization, Health Maintenance Organization and Point of Service.

An indemnity health insurance allows you to choose the hospital and doctor you turn to in times of health emergencies or sickness, with the option of covering the fees for reimbursement or having the hospital or doctor collect directly from the insurance company.

A Preferred Provider Organization is much like the indemnity policy, only your choices with a Preferred Provider Organization health insurance are limited to preferred hospitals, doctors, clinics chosen by the insurance company. If you choose providers outside this network, you will likely have to file a claim and pay more deductibles.

Health Maintenance Organization is like a stricter Preferred Provider Organization health insurance. It requires policy holders to use only medical services provided by the hospitals and doctors they have on their network. A doctor may refer you to another if you find the service unsatisfactory, but to a someone also within the same network. Only in emergency situations, which are stated in the contract, can you do otherwise. Normally, for Health Maintenance Organization health insurance, there are no deductibles and there is a limit to how much you can co-pay annually.

A Point-Of-Service health insurance is primarily an option in a health maintenance organization health insurance; this allows you to be referred by your primary doctor to someone outside the network with little or no cost.