Health insurance is a contract between a person and an insurance company. The person is the policyholder, and the insurance company pays the policyholder benefits when they become ill or injured. An important part of this definition to remember is that the person being insured pays for the insurance. However, many people today do not pay for their health insurance; their employers do. This means that you will have to choose from your employer’s list of available health plans.
What are the different types of health insurance?
1. Self-funded health insurance
This is referred to as “me first” private insurance in the United States and is also known as fully insured private health insurance. All the benefits are paid by you and all health care claims are paid out of your own pocket, and with no deductible or copayment. This type of coverage is relatively uncommon in the United States.
2. Fully insured private health insurance
Under this type of coverage, you pay for the medical expenses, and the insurance company pays what’s left. It is not uncommon in the United States and is typically very expensive. Under this plan, the insurance company sets a yearly maximum on what they will spend to cover your health care costs. This is called a deductible. After reaching this limit, your insurance provider starts paying 100 percent of your health care bills until you reach another yearly maximum limit, which is called a stop-loss amount or out-of-pocket amount.
3. Self-funded group and government health insurance
This type of health plan is not very common except in the Netherlands. It is essentially like the fully insured private health insurance plan described above, except that it is funded by your employer or the government. This type of coverage is generally quite expensive because there are no limits on what you will pay out-of-pocket each year.
4. High-risk pools
High risk pools are insurance plans that were created in response to the increasing problem of health care costs. The high risk pools provide coverage for people with pre-existing conditions, but do not require health insurance companies to cover benefits for these individuals. Due to their limited scope, high risk pools are generally very expensive and difficult to use.
Most Americans are covered by both self-funded groups and fully insured private health insurance plans, but there are also very limited situations in which Americans may be covered by high risk pools. Most high risk pools limit the number of benefits that they provide, and this typically means that they only cover hospitalization.