What is health insurance? Do I need a health insurance plan

What is health insurance
What is health insurance

What is health insurance; Do I need an insurance plan?

What is health insurance? Do you like the idea of an organization covering your medical or surgical bills?

Health insurance is a form of insurance that takes care of medical and surgical costs.

Basically, the individual who seeks insurance pays a particular amount of money to a company, pharmacy, or company that has a health insurance plan.

The providers(health insurance providers) cover the cost of medical bills and surgical procedures if the need arises.

There are different providers with different plans and packages. Each plan has the range of medical costs the company will be responsible for.

For example, if you pick the basic plan for a health insurance provider; it may cover only drugs and doctor’s consultation.

Therefore, before you choose a plan, you are expected to go through the provider’s brochure and pick the plan that’s right for you.

This article will introduce you to everything you need to know about health insurance. What it means, Its purpose, and benefits.

What is health insurance and its types? 

Some terms used in the definition of health insurance can be confusing. Therefore, before we define health insurance, let’s familiarise ourselves with the terms.

  • Insurer: An insurer is an individual or organization responsible for making payments. The insurer pays the compensation for the services rendered to the insured.
  • Insured: The individual with the health insurance or the person for insurance covers.
  • Provider: This can be an individual(doctor or health practitioner), organization, or hospital that provides medical treatment for the insured.
  • Contract: According to the English dictionary, a contract is an agreement between two or more parties to perform a specific job, often temporary or of fixed duration, and usually governed by a written agreement.

Health insurance, therefore, is a contract between an insurer and insured to cover all or some of the individual’s medical, surgical, or prescription bills.

There are different types of health insurance, based on the type the insured chose.

Furthermore, the insured can either cover his/her medical costs and receive reimbursement or the insurer pays directly to the provider.

In some companies, health insurance is a benefit that employees enjoy.

Types of health insurance 

There are two main types of health insurance. They include;

  • Public health insurance
  • Private owned health insurance

Public insurance 

Health insurance is owned by the government. Here, the country subsidizes the amount citizens pay for their medical or surgical bills. Examples of Public health insurance include; Medicare and Medicaid.

Private owned  insurance 

Just like the name implies, health insurance is covered by a private body instead of the government. There are different types of privately owned health insurance and they include;

  • Short-term health insurance – Health insurance for a short or brief duration.
  • Catastrophic health insurance – This is limit-bound insurance coverage for individuals below 30 years.

Managed-care plans

With these plans, the insured receives treatments at subsidized charges. The insurer and provider sign a contract to subsidize costs for policyholders.

Indemnity plan   

The insured have the freedom to choose their preferred place of treatment. It covers the costs for treatment across different providers.

Health maintenance organizations 

HMOs provide medical treatments directly to the insured, they work closely with a network of healthcare facilities.

Most HMOs have a specific primary care physician who is responsible for the medical care of the insured.

Features of health maintenance organizations include;

  • HMOs have the cheapest health insurance plans.
  • Individuals have restrictions in choosing their preferred healthcare providers.
  • Least amount of paperwork

Preferred provider organizations 

This is similar with HMOs however, the insured has more freedom to choose their healthcare provider.

Most PPOs have a network of healthcare providers, therefore the insured have more choices to choose from.

Point of service plan

This is a combination of health maintenance and preferred provider organizations.

The insured can choose to work with a primary care physician within the network of the insurer or other providers outside the network.

Exclusive provider organizations 

This is similar to health maintenance organizations.

The insured is expected to choose from the network of physicians and other health facilities provided by the insurer.


What is the purpose of health insurance 

  1. Financial protection 

Health insurance offers financial protection against unexpected health crises and events.

  1. Prevention from illness 

Most health insurance plans offer free check-up to their clients.

This is a beneficial plan that keeps the individual informed about their health. It can also serve to prevent illness.

  1. Financial support 

A health insurance plan is a financial support when you fall ill. We don’t expect it to fall but sometimes we do.

What do you do when you have no emergency fund? An insurance plan can offer you the financial help you need at that moment.

  1. Negotiate cost

Health services can be expensive. It is quite uncommon to hear people negotiate costs with their doctor.

However, with an insurance plan, the insurer takes care of all negotiations with the providers. You can have access to affordable medical treatments.

How do I choose an insurance plan?

Step 1

Choose your health insurance marketplace. Who do you want to purchase from? The government(federal or state), Employer, or private organization?

Step 2

Successful investors always say; never invest in what you don’t understand.

To buy an insurance plan, make your research out the different health insurance plans available. Compare the plans, you should choose what is best suited for you.

Step 3

Compare the insurer’s network of providers. If you have a family doctor, you can ask them if they accept certain insurance plans.

Step 4

Compare the following out of pocket costs;

  • Premium: the monthly amount of payment the insured pays to the insurer.
  • Deductible: The amount of money you pay for medical treatment before your insurer covers your medical bills.

Step 5 

Compare the benefits from different insurance plans.

Step 6

Ensure that you choose the right policy or plans.

What are the benefits? 

  1. Most health insurance plans offer free preventive care including; check-ups, vaccines.
  2. Insurance plans such as HMOs and PPOs have a network of providers. You can pay less as treatments are negotiated.
  3. You are prevented from medical cost inflation.
  4. Access to an affordable health care system.

Can I change insurance companies anytime?

You are not tied to a particular insurance company forever, however, switching your health insurance company can be complicated.

Have you heard of open enrollment?

There are two ways you can switch your insurance company. They include;

Open enrollment: This is a period in a year where anybody can switch their health insurance company. It begins from November 1st – December 1st in the United States.

The new plan becomes effective on January 1st.

Special enrollment: On special occasions, you have the opportunity to choose a new coverage option.

Special occasions include;

  • Marriage
  • Divorce
  • Loss of family member(s)
  • Birth
  • Relocation to a new zip code
  • Losing job

Canceling your insurance plan at any time for any reason is allowed. However, you cannot enroll in a new insurance plan until it’s time for open enrollment.

How does insurance work

Just the way your car or house insurance works, it is the same process.

  • Choose a plan
  • Agree to pay your premium
  • Health insurer agrees to pay a specific percent of your medical costs
  • Pay a deductible
  • Once your deductible is completely paid, you start sharing costs(coinsurance).


Next time someone asks the question, what is health insurance?  I’m sure you will have a better answer to give.

Choosing the right insurance plan matters a lot, you need to do a lot of research about the available options.

In conclusion, ensure that you do a lot of comparison before choosing a particular insurance plan.