How Insurance Works

Your guide to how health insurance works

Not sure where to start? 
Buying health insurance might seem complex, but it doesn’t have to be difficult. There are a few important things to know before you start shopping. But the good news is you’re in the right place. You’ll be up to speed and ready to find, choose, and buy coverage in no time. 
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How it works

What can a health plan do for you?

A health plan is insurance that protects you against the potentially high costs of medical care. With health insurance, you’ll have a limit on your health care costs for services that your plan covers. Plus, you’ll get discounted fees from doctors, clinics, and hospitals that are in your plan’s network.

How much does it cost?

Your costs will vary based on your plan type, and more. Typical plan costs can include:

  • A monthly premium (what you pay each month to keep your plan)
  • Deductible (the amount you pay before your insurance covers any costs)
  • Co-insurance (a percentage of costs you pay after you meet your deductible)
  • Copay (a flat fee for some services and prescriptions)

What’s covered?

The amount of financial protection you get from insurance is called coverage. Health insurance doesn't cover 100 percent of your costs. The coverage you get depends on the type of plan you choose.

All individual and family health plans help pay for a long list of health services. These covered health services are called benefits.

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How to choose a plan

Coverage

When you're in the market for a health plan, check out the coverage and benefits. Coverage is how much financial protection you get from insurance. Benefits are the health services that your plan covers.

Network

Every health plan has a network of providers, clinics, pharmacies, and hospitals. When you pick a plan, you're choosing your network. Your coverage depends on your provider being in your network. 

Plans with big networks typically have higher premiums. And those with smaller networks generally have lower premiums. Shop carefully, and make sure the providers you want to see are in the network you choose. Note: If you see providers outside of your network, some or all of your services may not be covered.

Plan types

As you're looking for the right health insurance, a good step is to figure out the plan type you need. Each plan type balances your costs and risks a bit differently. Think about your health care use and how much you can afford to find one that fits.

Prescriptions

Every plan has a list of drugs it covers. That list tells you how much of the cost is your responsibility. If you take prescription drugs, check if your drugs are covered and what your share of costs will be.

Extras

Some plans have programs to help you stay well, including, pregnancy support programs, and other online and in-person extras. Can't decide between multiple plans? Check out each one's extras to help you choose.

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How to buy a plan

When can you buy a health plan?

You can buy individual or family health plans during two enrollment periods:

  • Open enrollment is a fixed time period each year. During this time anyone can buy an individual or family health plan. It typically runs from Nov. 1 to Dec. 15.
  • A special enrollment period is outside open enrollment dates. During special enrollment, you can buy a plan or make certain changes to existing coverage. Special enrollment is specific to you and can only be triggered by what's called a "qualifying life event."

Can you get a subsidy?

Many people who buy individual insurance can get a tax credit, also often called a subsidy. It helps you pay premiums and out-of-pocket costs. To get a credit, you have to buy your plan through your state's health insurance marketplace.

Where can you buy a health plan?

Through your state's health insurance marketplace. A health insurance marketplace is a government-sponsored online store where multiple companies offer individual and family policies. Some states have their own; other states participate in the federal marketplace.

Who can help you find and buy a health plan?

There are several types of professionals who can help you shop for and buy a health plan.
Helper type

Licensed insurance agents and brokers

Role

Help you understand what different health plans offer and how much they cost

Navigators

Role

Talk you through your options on the health insurance marketplace
Your state's insurance marketplace can help you find a licensed insurance agent, broker, or navigator.
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Helpful insurance terms

Benefits

Health care services covered with some level of payment by your insurance plan.

Co-insurance

A percentage of the charges for a health care service that you pay.

Copay

A flat fee you pay for some services and prescriptions.

Covered services

Also called benefits, these are services included in your health plan. You and your insurer will share the cost of them. All covered services count toward your deductible and out-of-pocket maximum.

Deductible

How much you pay each year before your insurance starts to pay. There are two types:

  • Non-embedded deductible: Everyone on the plan shares one family deductible.
  • Embedded deductible: Each family member has their own deductible, in addition to a shared family one.

Health insurance marketplace

A government-sponsored online store where companies offer policies. You must buy your plan through the marketplace to get financial assistance (tax credit/subsidy).

Health savings account (HSA)

A special bank account that helps you set aside money for medical expenses, tax-free. You must enroll in a High-Deductible Health Plan to apply these funds to your insurance benefits.

Network

Your network includes doctors, clinics, hospitals, pharmacies, and other providers. They contract with your insurer to provide services at discounted rates. Your benefits will only apply to providers in your plan’s network.

Non-covered services

Some services aren't included in your health plan (also called exclusions). You pay the full cost of those services. Payments for non-covered services don’t count toward your deductible or out-of-pocket maximum. Examples are cosmetic procedures, test drugs, and refractive eye surgery.

Out-of-pocket maximum

This is a limit on what you pay in a year for covered services. Deductibles, copays, and coinsurance count toward this amount. Premiums don't.

Explore our glossary to find definitions of more commonly used terms.

Next steps

If you’d like to know even more, check out one of these helpful resources.
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Order a kit

Find out how your plan needs change at key points in your life.
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Are you eligible for a subsidy?

Check if you can save on your health care insurance premium. 
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