How health insurance works

Understanding how health insurance works can feel difficult at first, but a basic overview can help you use your plan with confidence.

When you get health insurance, also called health coverage, you're taking a step to protect yourself from unexpected illnesses, injuries, and accidents. Without health insurance, you would need to pay for medical bills on your own. Once you're enrolled, you'll have access to important health benefits, including preventive care.

In California, residents must have qualifying health coverage. Without it, they may be charged a penalty when they file their state tax return. The only ways to avoid the penalty are to enroll in health insurance or qualify for an exemption.

The quality of your plan is key. A high-quality health insurance plan:

• Safeguards you from unexpected, high-cost medical expenses

• Helps you pay less for covered, in-network health care services

• Provides no-cost preventive care, such as health screenings, vaccines and some checkups

How health insurance works

These three main points can help explain how health insurance works:

1. When you join a health insurance plan, you become a member.

2. You'll make monthly payments as a member of a group or plan, which shares the cost of medical services needed by members of the plan.

3. Members pay "just in case" they need care. As a result, you won't have to pay the actual cost of care when you need it. It can be very expensive if you have to pay for everything on your own.

However, there’s an important consideration to keep in mind.

If you join a health plan through your job: You and your employer share the cost of your monthly premium payments. Your contribution usually comes from your paycheck.

Common health insurance terms

As you shop for a new health plan or review your current policy, you may come across unfamiliar terms. Understanding these terms can help you make informed decisions.

1. Your premium and deductible

When you enroll in a health insurance plan, you pay a premium (a monthly payment) to keep your coverage active. Your premium may cover some — or all — of your care. You must pay your premium each month, even if you don’t use medical services.

A deductible is the amount you pay for covered health care services before your insurance starts to pay. For example, if your deductible is $1,000, you pay the first $1,000 of covered services yourself. Premium payments do not count toward your deductible.

Why this matters: When you choose a health insurance plan, you choose your premium and your deductible. In most cases, a higher deductible means a lower premium. The opposite is also true: The lower your deductible is, the higher your premium will be.

High premium, low deductible If you know you will need to use your covered benefits often — for example, if you expect to see your doctor or specialists several times in the coming year — then you may want to consider a plan with a higher premium and lower deductible. Although you'll pay more each month, you will meet your deductible faster and your insurance carrier will pay for covered services sooner.

Low premium, high deductible If you know you won't use your insurance often, a lower premium and higher deductible may work better for you. This means your overall monthly insurance costs will be lower.

2. Your coinsurance

Coinsurance is a portion of the cost of covered health care services after you finish paying your deductible. Coinsurance shows up as a percentage in your summary of benefits and coverage.

What this means: If your coinsurance is 20%, once you’ve met your deductible (if applicable), you pay 20% of the cost of a service, and your health plan pays the remaining 80%.

3. Your copayment

A copayment (copay) is a set amount you pay for a specific service, such as $25 for a doctor’s visit or $15 for a prescription.

What this means: Your copay stays the same, regardless of how much your provider charges. You’ll continue to pay copays until you reach your maximum out-of-pocket amount.

4. Your maximum out-of-pocket amount

A maximum out-of-pocket (MOOP) amount is the most you’ll pay for covered care in a 12-month period. It includes your deductible, eligible copays and coinsurance, but not your monthly premiums.

What this means: Most payments you make when receiving care go toward your MOOP amount. Once you spend this amount on deductibles, copays and coinsurance, your insurance carrier will pay 100% of your covered benefits until the MOOP resets (returns to zero) in the next coverage year. The limit for your MOOP varies depending on your plan, but it cannot exceed a certain amount each year.

Sharp HealthCare accepts almost all health insurance plans, including Sharp Health Plan. Sign up for a free, 15-minute online health insurance enrollment lab or call 1-800-82-SHARP (1-800-827-4277). If you're ready to purchase individual insurance, Sharp Health Plan’s enrollment team is available to help.