The healthcare system in the United States is quite complex, with a mix of private and public insurance plans.
Here is an overview of how health insurance generally works in the USA, focusing on the main concepts and ways people get coverage.
1. The Core Concept: Risk Sharing and Cost Sharing
Health insurance is a contract between you (the policyholder) and an insurance company.
Key Cost-Sharing Terms
Understanding these terms is crucial, as they determine your out-of-pocket expenses:
| Term | What It Is | How It Works |
| Premium | The fixed amount you pay, usually monthly, to keep the insurance policy active. | You pay this regardless of whether you use medical services or not. |
| Deductible | The amount you must pay out-of-pocket for covered health services before your insurance company starts to pay. | If your deductible is $1,000, you pay the first $1,000 of covered costs yourself. Preventive care is often covered 100% before the deductible is met. |
| Copayment (Copay) | A fixed amount (e.g., $25 or $50) you pay for specific services, like a doctor visit or prescription, at the time of service. | This usually applies even after your deductible has been met. |
| Coinsurance | Your share of the costs of a covered service, calculated as a percentage (e.g., 20%) after you have met your deductible. | If the bill is $1,000 and your coinsurance is 20%, you pay $200, and the insurer pays $800. |
| Out-of-Pocket Maximum | The absolute most you will have to pay for covered health services in one year. | Once you hit this limit, the insurance company pays 100% of all further covered medical costs for the rest of the plan year. This maximum does not include your premiums. |
2. Where People Get Coverage
Most Americans get health insurance through one of three main channels:
A. Employer-Sponsored Insurance (ESI) - Private6
Most Common: Over half of non-elderly Americans are covered this way.
How it Works: Your employer selects and offers a limited set of plans.
7 The employer typically pays a large portion of the premium, and the rest is deducted from your paycheck.
B. Government Programs - Public
These are primarily for specific demographics or income levels:
Medicare: A federal social insurance program primarily for people aged 65 or older, and for younger people with certain disabilities or medical conditions.
8 Medicaid: A joint federal and state social welfare program that provides coverage to low-income adults, children, pregnant women, elderly adults, and people with disabilities.
9 Children's Health Insurance Program (CHIP): Provides low-cost health coverage to children in families who earn too much money to qualify for Medicaid, but cannot afford to buy private insurance.
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C. Individual Market Plans - Private
The Marketplace (ACA): You can buy plans through the Affordable Care Act (ACA) Health Insurance Marketplace (HealthCare.gov or a state-run site).
11 These plans must meet certain standards and are the only place where eligible people can receive federal subsidies (premium tax credits) to help lower the monthly cost.Direct Purchase: You can also buy a plan directly from an insurance company outside the Marketplace.
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3. Common Plan Types
Different plans determine which doctors you can see and how much you pay:
| Plan Type | Network/Referral Rules | Cost Flexibility |
| HMO (Health Maintenance Organization) | Usually limits coverage to care from providers in the network. Requires you to choose a Primary Care Physician (PCP), and you often need a referral to see a specialist. | Generally has lower monthly premiums and lower out-of-pocket costs when you stay in-network. No coverage for out-of-network care (except emergencies). |
| PPO (Preferred Provider Organization) | You pay less if you use providers in the plan's network. You can see out-of-network providers without a referral, but you will pay significantly more. | Generally has higher premiums than HMOs, but offers greater flexibility in choosing providers. |
| EPO (Exclusive Provider Organization) | Similar to an HMO, services are covered only if you use providers in the network (except in emergencies). No referral needed for specialists. | A mix of the two—flexible with specialists but strict on network usage. |
| POS (Point-of-Service) | Blends HMO and PPO features. You need a PCP referral to see specialists, but you can choose out-of-network care for a higher cost-share. | Offers some flexibility while keeping costs lower than a PPO if you stick to the network. |
4. Networks and Claims
Networks: Insurance companies negotiate discounted rates with a group of healthcare providers (doctors, hospitals, labs) called a network.
13 Staying "in-network" results in much lower costs for you.14 Going "out-of-network" means you pay significantly more.Claims: When you receive care, the provider sends a claim to the insurance company.
15 The insurer then reviews the claim, applies your deductible/copay/coinsurance, and pays its share to the provider.16 You are then billed for the remainder of your cost-sharing responsibility.
Navigating the US system is often about balancing a higher premium (monthly cost) for lower cost-sharing (deductibles, copays) or vice versa.
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