Health Insurance Basics

Health insurance is a product that covers your medical expenses. Like auto insurance covers your car if you get into an accident, health insurance covers you if you get sick or injured. Health insurance also covers preventive care – i.e., doctors visits and tests before you get sick.

Health insurance basics

Health insurance doesn’t always cover 100% of your costs. In fact, it’s designed to split the costs of medical care with you up until a certain point, called the out-of-pocket limit. After you hit the out-of-pocket limit, health insurance will pay 100% of your health care costs and medical bills.

There are a few ways that health insurance companies might share costs with you, and they make up major features of your health insurance plan that you need to be aware of: your deductible, your copayment, your coinsurance, and your out-of-pocket limit. We’ll discuss them in more detail in our “Key features” section below.

All health insurance plans need to cover the 10 essential benefits. In addition to the 10 essential benefits, health insurance plans must meet certain affordability standards, as well as other rules that vary on a state-by-state basis, in order to be included on a government-run health insurance exchange. Off-exchange plans, so called because they are not sold on government-run exchanges, must also cover the 10 essential benefits and meet certain federal standards in order to be considered qualifying health coverage. These consumer protections closed loopholes that caused financial problems for policyholders in the past.

Through 2018, as outlined in the Affordable Care Act (the ACA, also known as Obamacare), all American citizens needed to have qualifying health coverage, which was called the individual mandate. If they didn’t, they had to pay a fee on their federal tax return. 

As of 2019, the individual mandate has been suspended. There is no longer any penalty for not having health insurance. However, if you are filing back taxes for a tax year before 2019, you may still need to file Form 1095 to prove you had coverage.