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Insure | What is Health Insurance? Types, Benefits, and How It Works

What is Health Insurance? Types, Benefits, and How It Works

What is Health Insurance

Life is full of unexpected twists and turns and we all know that health is our biggest wealth. We must hope for the best in life but also prepare for the worst circumstances possible.

A lot of uncertainty is present around the health of a person, because of the fragile nature of the human body. Hospital bills and medical treatment are expensive and can cost a large amount. This is when health insurances come into focus. A health insurance policy not only prepares you for a rainy day but also provides health security coverage. Difficult situations are quite easy to tackle when you are covered under a insurance plan. 

What Is Health Insurance

Health insurance is a deal between an insurance company and a policyholder. Here the Insurance company agrees to pay all or some of the insured person's medical and surgical expenses in return for payment of a monthly premium. 

In most cases, this is a one-year agreement. During this time if you are suffering from any kind of illness then the policyholder will pay for the costs. Whenever it comes to buying a health insurance plan we all tend to procrastinate till someone from our family gets sick. Before buying a plan, it is important to know about health Insurance, it is crucial to understand the various benefits of a health insurance plan and how health Insurance works, as medical emergencies can show up anytime and could make a big problem to your pocket. Therefore, it is advisable to purchase a health insurance policy at a very early age, plus you also get the advantage of tax deductions on premiums paid. 

Types of Health Insurance Policies

A Health insurance Policy is the best safeguard more than any other thing considering the rise in the expense of healthcare facilities provided nowadays. There are a number of  Health insurance policies available to look after your requirements.

Let us discuss the different types of health insurance policies available.

1. Health Maintenance Organization (HMO):

Health Maintenance Organisation plans come with a requirement of choosing a primary care physician(PCP), who is responsible for your healthcare needs. This requirement to choose one specific PCP binds you to seek care within a network. Even if the PCP is not a specialist in your case, then he will provide referrals to a specialist within his network.

2. Preferred Provider Organization (PPO):

More flexibility is seen here as compared to above mentioned HMO in choosing your healthcare providers. Here you have the freedom to visit both in-network and out-of-network doctors with any requirement of your PCP referral. But keep in mind that out-of-network doctors generally come with higher costs.

3. Exclusive Provider Organization (EPO):

In the Exclusive Provider organization plans, similar to HMO you need to stay within the network of healthcare providers but the good part is that you don't need to select any PCP or obtain referrals for specialist care from him. Similar to HMO, these plans also do not cover outside network services with the exception of emergencies.

4. Point of Service (POS):

Point of Service (POS) plans to combine features of HMO and PPO plans. You are required to choose a PCP who manages your healthcare and provides referrals to specialists within the network. However, you also have the option to receive care from out-of-network providers, although at a higher cost. POS plans typically require you to pay a deductible and coinsurance for out-of-network care.

5. High Deductible Health Plans (HDHP) with Health Savings Accounts (HSA):

High Deductible Health Plans, as the name suggests, provide higher deductibles but lower premiums as compared to other plans which we have seen above. Mostly they are used in combination with Health Savings Accounts (HSAs). This merger helps you to contribute your pre-tax funds for the payment of qualified medical expenses. If money is your problem then HDHPs with HSAs can be a great option for you if you are someone who doesn't require frequent medical care.

6. Catastrophic Health Insurance:

Catastrophic health insurance is designed for individuals under the age of 30. Similar to HDHPs these plans offer low monthly premiums but have very high deductibles. All the essential health benefits are covered in this plan after the deductible is met. The plan protects you from unexpected situations by providing you with high medical costs in case of serious illness or injury.

Read Also:- Understanding Financial Planning in Insurance: A Comprehensive Guide

How Does Health Insurance Work? 

The process of Insurance starts when you purchase health insurance policies. Depending on the coverage provided, the premium, the exclusion, and the inclusion, you can pick an insurance policy. 

From here on, your relationship with insurance companies begins. Now the insurance company will decide the premium you will pay on your health insurance policy depending on your age and your income. Also, there will be a general medical test to assess your general health. Depending on these factors the company will set a year's premium and the sum assured will be approved. 

Now in case of hospitalization, you need to check out whether the policy is a cashless insurance policy or not. If the policy is cashless, you need to approach the Third Party Administrator (TPA) in the network hospital. TPA will get your hospital bill directly reimbursed.

If the policy is not cashless, you will have to pay the hospital bills and look after every minute detail by yourself. TPA's will collect your documents and verify them and ensure your claim application is complete. 

Once the application process is completed, they will file the claim with the insurance company. Then the insurance company will process the claim and reimburse the bills. In this claim, the deductibles are also applied. Some expenses are paid by the insurance companies while others are deducted.

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A health insurance policy is designed to support you financially in case of a medical-related emergency caused by accidents, illness, or hospitalization. There are several benefits of health insurance policies. It is becoming more relevant than before every day as health insurance is a necessity that can not be ignored in recent times.

This article covers a list of benefits provided by health insurance policies so that you can choose what next you can purchase. 

Insurance coverage for healthcare emergency

The primary benefit of health insurance is it provides facilities for healthcare emergencies. It can include your checkups, surgery cost, and more. The most benefit you get is in an emergency, where you need not worry about the deposits as the hospital can directly settle the bills with the insurer. 

Any medical problem requiring urgent hospitalization are covered under standard health insurance plans such as treatment against critical illness, pre and post-hospitalization charges,  surgery costs, road ambulance cost, and more. 

 The Affordable Premium for the Young Individual

Purchasing health insurance at a young age benefits you in advance. In any type of health emergency, it reduces the financial strain as you have enough time to spend the premium amount you covered over the years.

Also, we all know that when we grow older, health-related issues become more common, thus not having a plan can give you more stress and affect your savings. Thus buying an insurance plan can be very beneficial for younger ones.

Tax Benefits

Health insurance is also beneficial in saving tax. The US government as such has no policy to exempt taxes but the plan gets subsidized if you are working in a company by your employer. Thus it allows policyholders to reduce their tax liability when they purchase a health insurance plan. Thus, it can greatly impact reducing the tax on deductible expenses.

Safeguard your Family 

As medical emergencies are completely unpredictable, it's better to get prepared for them in advance. Planes like family health insurance policies can help your loved ones in tough times, and provide safety, security, and relief regarding financial costs. The financial safeguard of your family is insured by such health policies in difficult times.

 Protect Your Savings

The benefit of health insurance will protect your savings by covering a significant portion of your medical expenses, reducing your out-of-pocket costs, and providing financial security against unexpected medical events. You can spare those savings money for some sustainable life expenses.

Peace of Mind

Peace of mind is of utmost priority and is priceless in life. When you are secure and happy in life other problems seem manageable. The benefits of health insurance plans ensure that you live without worry. It assures you that you won't face any crippling medical expenses and can access the care you need without any worry.



Hope you found this article well-informed and interesting. You might have been amazed to see such different types of health insurance policies available. However, we have mentioned each of the health insurance policies in a detailed manner for you. When purchasing any health insurance policy for you or your family, the learnings of this article will come in handy to you. If you enjoy reading this article, share it with your friends and family. Happy learning!!

Read Also:- Insure your Future: Exploring Various Types of Life Insurance

Frequently Asked Questions

Q.1 What is the open enrollment period, and when is it typically held each year?

The open enrollment period is the pre-decided time of the year when you can enrol yourself in or make changes to your previous existing health insurance plans. In the USA, this period typically occurs once a year and the time can vary depending on the type of plan you are interested in is individual or employer-sponsored. Mostly it takes place between November and December.

Q.2 How do I determine which health insurance plan is best suited for my individual or family needs?

Choosing the right plan depends on various factors including your specific healthcare needs, budget, and personal preferences. Follow these steps to determine which plan will suit you best:
1. Assess your healthcare needs 
2. Compare plan types
3. Review cost-sharing features
4. Check the provider network
5. Consider additional benefits

Q.3 Can health insurance be purchased across state lines, or are plans typically limited to specific states?

No,you can't buy a health insurance plan outside of your own state.Currently, laws specify that you need a permanent address in order to buy a plan.