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What is Health Insurance?

Health insurance coverage varies greatly, but basically health insurance is a type of insurance policy that pays a pre-negotiated percentage of a policy holder's covered medical treatments - medical insurance. Do you really need health insurance or can you live without it? The answer depends on whom you ask and the question is not always an easy one.

Like other forms of insurance, health insurance doesn't really become an issue for the person taking out the health insurance, until you need it. Automobile insurance doesn't come into play until you get into a car accident. Life insurance doesn't come into play until you die - and of course life insurance benefits your dependents, rather than you, the insurance policy holder. And similarly, health insurance doesn't come into play until you need medical assistance. But almost all healthy people need health insurance at some stage of their lives - that is, most of us do get sick at some time or another, so health insurance really is a great idea for just about all of us. And if you believe in Murphy's Law—that whatever can go wrong, will—then you should definitely consider taking out health insurance.

In some countries, health insurance is not offered by private companies like it is in the United States. In England, France, Canada, Sweden and Norway, for example, the doctors and hospitals are reimbursed by the government instead of an insurance company. So health insurance in those countries is not a major issue. Sometimes health insurance in those countries is not required at all.

In the United States, however, the health insurance position is vastly different. Health insurance is a must for anyone who may get sick and not have the resources to pay for any medical treatment that may eventuate.

Basically there are three types of health insurance:

1) Self-Insured/Uninsured. This is where an individual has no insurance or has health insurance but is responsible for paying 100% of the insurance premium. This group is estimated to comprise at least 30% of the US population.

2) Managed Care Plans. Managed Care Health Insurance Plans fall into three categories. All are essentially networks to provide contracted services by specific providers at contracted prices:

i) Health Maintenance Organizations (HMO) are prepaid health insurance plans in which members pay a fixed monthly fee, regardless of how much medical care is needed in a given month. HMOs provide medical services ranging from office visits to hospitalization and surgery, and usually insist that you stay within the network when you need services from physicians and hospitals.

ii) Preferred Provider Organizations (PPO) are groups of doctors and hospitals that provide medical service only to specific groups. PPO members typically pay for services as they are provided, and the PPO sponsor typically reimburses the member for the cost of the treatment. In most cases, the price for each type of service is negotiated in advance by the healthcare providers and the PPO sponsor.

iii) Point of Service (POS) plans are not as common as the other two. This is a type of managed health insurance healthcare system in which you pay no deductible and usually only a minimal co-payment when you use a healthcare provider within your network. You also must choose a primary care physician who is responsible for all referrals within the POS network. If you choose to go outside of the network for healthcare, you will be subject to excess charges or deductibles.

3) Indemnity Plans enable participants to seek medical assistance whenever they need. Participants of indemnity health insurance plans can visit any doctor or specialist, as often as they feel necessary. There are no restrictions when it comes to seeking medical help, but this is by far the most expensive type of health insurance plan.