Health Insurance Basics
Health insurance protects against the financial consequences of sickness and injury, including medical bills and lost income. This topic introduces the core concepts, the idea of morbidity, and the cost-sharing terms that appear throughout health coverage.
What Health Insurance Covers and Morbidity
Health insurance covers the perils of sickness and accidental injury. The two broad categories are medical expense coverage (paying for care such as hospital, physician, and surgical services) and disability income coverage (replacing part of the income lost when the insured cannot work). Insurers price health coverage using morbidity, the frequency and severity of illness and disability in a group, which is different from mortality (the rate of death) used mainly for life insurance. Because people can recover and file repeated claims, health insurance pricing and provisions differ meaningfully from life insurance.
Cost-Sharing: Deductibles, Coinsurance, Copays, and Stop-Loss
Medical plans share costs with the insured through several tools. A deductible is the amount the insured pays before the plan begins paying. Coinsurance is a percentage split of covered costs after the deductible (for example, 80/20). A copayment is a flat dollar amount paid at the time of a service, such as a doctor visit. The out-of-pocket maximum (stop-loss) caps the insured's annual cost sharing; once reached, the plan pays 100% of additional covered expenses. These features control premium cost and discourage overuse while protecting the insured from catastrophic bills.
Disability Income Fundamentals
Disability income insurance replaces a portion of earnings (commonly around 60 percent, so the insured retains an incentive to return to work) when the insured cannot work due to injury or sickness. The elimination period is a waiting period after the disability begins before benefits start, functioning like a time deductible; a longer elimination period lowers the premium. The benefit period is the maximum length of time benefits are paid. Benefits may be based on total disability, partial or residual disability, and definitions of disability (own-occupation versus any-occupation) strongly affect how easily a claim qualifies.