Health insurance is a contract between a company and a consumer. The company agrees to pay all or some of the insured person’s healthcare costs in return for payment of a monthly premium.
The contract is usually a one-year agreement, during which the insurer will be responsible for paying specific expenses related to illness, injury, pregnancy, or preventative care.
Health insurance agreements in the U.S. generally come with exceptions to coverage including:
- A deductible that requires the consumer to pay certain healthcare costs “out-of-pocket” up to a maximum amount before the company coverage begins
- One or more co-payments that require the consumer to pay a set share of the cost for specific services or procedures
How Health Insurance Works
In the United States, health insurance is tricky to navigate. It is a business with a number of regional and national competitors whose coverage, pricing, and availability vary from state to state and even by county.
About half of Americans have health insurance coverage as an employment benefit, with premiums partially covered by the employer. The cost to the employer is tax-deductible to the payer, and the benefits to the employee are tax-free, with certain exceptions for S corporation employees
Self-employed people, freelancers, and gig workers can buy insurance directly on their own. The Affordable Care Act of 2010, commonly called Obamacare, mandated the creation of a national database, called HealthCare.gov, which allows individuals to search for standard plans from private insurers that are available where they live. The costs of the coverage are subsidized for taxpayers whose incomes are below the federal poverty threshold.8
Some, but not all, states created their own versions of HealthCare.gov that are tailored to their residents.
Retirees receive federally-subsidized care through Medicare, and families whose self-reported incomes were in the lowest income bracket are eligible for subsidized Medicaid coverage.
