How Does Health Insurance Work?

Health insurance is a form of risk care management against incurring medical expenses for individuals. In other words health insurance is a policy, contract and service agreement between an insurance provider (company or government) and individual people (or an organization).

How Does Health Insurance Work?

When you purchase a health insurance policy (or get one from your employer) you join a group of other people to combine your healthcare purchasing power. The provider of your health insurance covers the whole group so everyone shares the cost of staying healthy.

The best way to grasp how health insurance coverage works is to take a real life example so check out the scenario below.

Lets say you have a surgery - a major surgey such as heart surgery. This procedure is very expensive and cost at least $100,000! This expense could be covered by your health insurance plan, which is awesome. But, this doesn't mean you are clear from any financial obligations. This is where your deductible, coinsurance, and possible out-of-pocket expenses come in.

If your deductible is $1,000 and you have a 100k surgery, you are obligated to pay the first $1,000. After the 1k deductible is met, the health insurance provider will pay a percentage of the bill (which is called coinsurance). Okay so that's a lot of take in right now. Just know the way health insurance works is complex but it is useful and can help you in need of medical expenses.