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Why is medical insurance so complicated?

Keep in mind...
  • Medical insurance has many parts and options; the consumer must make informed choices
  • Unlike other types of insurance, there is no simple fee for services arrangement
  • Medical insurance for older Americans has four parts and requires consumer decisions
  • Obamacare is medical insurance for those that can afford to pay

Medical insurance is unlike other types of insurance. The consumer can feel that it is a never-ending stream of demands for payment. The medical insurance contract must meet the standards of the Affordable Care Act for qualified health coverage.

Going without coverage can bring a tax penalty, and many consumers feel that affordable premiums come with deductibles that are beyond reach.

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The Individual Mandate

The Affordable Care Act reformed the medical insurance industry. It barred the use of pre-existing conditions and required guaranteed issue for those with the ability to pay. Every eligible person must get and keep qualified health insurance coverage.

Qualified Health Insurance

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Obamacare seeks to provide a level of insurance protection that meets the foreseeable needs of individuals and families that may need medical care. The law seeks to ensure a level that can manage hospitalization and medical services for an illness. Before the Affordable Care Act, unpaid medical bills were a leading cause of personal bankruptcy in the US.

The 10 Essential Health Benefits

The below-listed items describe some of the essential health benefits included in every qualified health plan.

  • Mental health services including treatment for drug and alcohol addiction
  • Vaccines, tests, and annual health screenings
  • Laboratory tests and services
  • Maternity, prenatal, and postnatal care
  • Emergency medical transportation
  • Prevention and wellness services at no additional costs

Minimum Essential Coverage

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Employer plans, group plans, and individual plans must provide minimum essential coverage. The Congress included the Minimum Essential Coverage requirement based on information from studies of large employer groups, government employers, and labor organization sponsors. The concept is that insurance must be adequate to manage the costs of a significant illness in the existing medical market conditions.

Insurance Provider Networks

Insurance providers plan the level of service needed for the insured group of subscribers. They make agreements with medical care facilities and doctors to deliver services at agreed prices. An insurance plan network consists of the doctors, hospitals, and medical facilities under the agreement. Networks can be broad or narrow.

  • Broad networks offer a variety of services and a favorable ratio of service providers to subscribers.
  • Narrow networks can deliver services at lower costs. Narrow networks seek to drive a high volume of subscribers to the network’s high-value medical care providers.

Types of Managed Care

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Medical insurance is complicated because of the layers of payers and service providers. Insurers use several types of managed care, and the type of care makes a big difference in consumer choice and the costs. The below-listed items describe the major types of managed care.

– HMO is the Health Maintenance Organization.

The HMO type of managed care uses a primary care physician to treat patients and oversee their treatrments. The primary care physician can make referrals to other network resources. The plan’s limits do not count spending outside of the network, and the plan does not provide cost sharing for spending outside of the network.

– PPO is the Preferred Provider Organization.

The PPO type of managed care came in response to consumer demands for flexibility. The PPO covers outside spending at a lower rate than in-network resources. The PPO does not use a primary care physician, and subscribers can self-refer to the network resources.

– EPO is the Exclusive Provider Organization.

The Exclusive Provider type of managed care offers low prices and fewer copays for network care. It pays nothing for care obtained outside of the provoker’s network.

The EPO does not use a primary care physician, and subscribers can use any network resource without a referral.

– POS is the Point of Service organization.

The Point of Service type of managed care uses a primary care physician to treat patients and monitor their care. The POS offers low-cost incentives to consumers to encourage use of network resources.

– FFFS is the Fixed Fee for Services Model

Original Medicare is an excellent example of this approach. The consumer is not constrained and can select any medical service provider that accepts the plan. The medical service providers are restricted to the agreed price for the service.

HMO-POS is the HMO with a Point of Service Option

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The HMO-POS type of managed care uses a primary care physician to deliver services and make referrals to network specialists. This variation also permits the primary care physician to make referrals to outside specialists. When the PCP refers to the outside market, the insurance company pays the agreed costs-sharing amount.

Types of Plans

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Medical insurance is complicated by the wide range of costs, services, and prices in Marketplace plans. Obamacare offers four types of plans and a limited level of catastrophic coverage. The types or metal tiers use actuarial value to group policies with similar content.

The Bronze plan represents the lowest level of actuarial value and the highest level of deductibles. The below-listed items describe the Obamacare plans.

  • Platinum plans have high premiums and provide cost sharing for 90 percent of the costs of covered essential benefits.
  • Gold plans pay 80 percent of the costs of covered essential benefits. They have high premiums and reachable deductibles.
  • Silver plans cover 70 percent of essential benefits They have moderately high deductibles and match with Health Savings Accounts.
  • Bronze plans pay 60 percent of covered essential benefits; they have high deductibles that are not easily reached.
  • Catastrophic coverage is for persons under 30 and those with hardship exemptions. It does not cover a wide range of benefits, but it provides coverage in the event of a serious medical event.

The Medical Insurance Contract

The medical insurance contract between the policyholder and the insurance provider is only the beginning of the medical insurance cycle. The contract requires premium payments which cover the costs of the contract.

Unlike most other types of insurance, the medical policy does not pay until the consumer pays more. Once the medical policy begins to pay the consumer must share costs and pay service fees.

Medicare

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Critical choices complicate insurance for older Americans. Unlike Marketplace policies that have a standard set of benefits, Medicare recipients must choose between structured plans and a fee for service arrangement in original Medicare. The consumer must decide whether to add supplemental protection and prescription benefits. The consumer will likely work with two or three companies rather than one.

Premiums

The premiums cover the costs of maintaining the insurance contract. The Obamacare Marketplace provides subsidies to lower the monthly costs to qualified subscribers. Obamacare limits out-of-pocket expenses and overall spending.

Deductibles

Consumers must pay an agreed level of expenses before the insurance company begins to pay cost sharing. Depending on the policy, in 2017, deductibles can be as high as $7,150 for an individual and $14,300 for a family.

Copays

Insurers charge small fees at the point of service. These fees do not reflect the price of the service; rather, they are fees to cause the consumer to contribute to their care, reduce insurers costs, and add to profits.

Coinsurance

The standard policies require the consumer to pay part of the costs of covered essential benefits. The rates range from 10 percent for platinum plans to 40 percent for bronze plans.

In-Network versus Outside of Network

Obamacare set limits on the amount that consumers must spend for any qualified health plan. The deductible limit and the out-of-pocket limit create a cap. Once consumers pass the limit, the insurance company must pay the entire costs of covered benefits.

When consumers spend outside of the network without a referral, they do not get credit against the deductible or out-of-pocket limits. Potentially they could amass a burdensome level of medical debt despite insurance coverage.

Medical Insurance is Complicated

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In the US, the Affordable Care Act brought reforms and changes to the industry that largely favored consumers. The fundamental changes include guaranteed issue and minimum essential coverage.

Medical insurance still operates through private insurers with some exceptions like Original Medicare, the VA, and the federal employee health system. The federal government and the states play crucial roles in offering insurance. Medical insurance is complicated; it has many layers of rules, payers and management systems.

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