Healthcare, health insurance definition
"Healthcare" and "health insurance" are sometimes used interchangeably, but they aren't the same. What's the difference?
Healthcare refers to the maintenance or improvement of health through prevention, diagnosis, treatment, and management of illness, injury, and other physical or mental conditions. It includes services provided by medical professionals, hospitals, clinics, pharmacies, and other facilities.
In everyday conversation, “healthcare” is sometimes used to mean health insurance, but they are not the same. Health insurance is a financial product, a contract between you and an insurance provider, that helps pay for healthcare. Health insurance is the means to pay for healthcare, not healthcare itself.
How does US health insurance work?
In the US, health insurance works as a cost-sharing arrangement between you and your insurer:
- Premiums: You pay a monthly fee to keep coverage active.
- Deductibles: You pay a set amount out of pocket each year before your insurer starts covering costs.
- Copayments: Fixed fees for specific services, like doctor visits or prescriptions.
- Coinsurance: A percentage of the cost you pay for covered services after meeting your deductible.
- Networks: Using in-network providers typically costs less because insurers negotiate discounted rates. Out-of-network care may cost more or may not be covered at all, depending on the plan.
- Coverage rules: Plans have specific covered services, exclusions, and requirements such as prior authorizations.
Most plans also set an annual out-of-pocket maximum. Once you reach it, the insurer pays 100% of covered costs for the rest of the year.
Why do people purchase health insurance?
Health insurance can help individuals manage medical costs in the United States, where healthcare prices are among the highest globally.
Health insurance can:
- Limit exposure to high medical expenses by setting maximum out-of-pocket amounts.
- Help make preventive services, early treatment, and prescription medications more affordable, depending on the plan.
- Include negotiated rates between insurers and healthcare providers, which can lower costs for covered individuals compared with those without insurance.
- Provide financial protection in the event of an unexpected illness or injury.
