Health Insurance

HR Glossary for HR Professionals

Glossary of the most common HR terms and acronyms to assist professionals navigating the ever-growing and ever-changing world of HR terminology.

Health Insurance

What Is Health Insurance?

Health insurance is an agreement—called a plan—between an insurer and an individual—sometimes referred to as a participant or beneficiary. This plan requires the insurer to partially or fully cover the cost of the individual’s medical expenses in exchange for a regularly recurring payment. Medical expenses include doctor visits, prescription drugs, medical devices, and surgeries.

Insurers also negotiate contracts with particular medical providers, so that plan participants pay a lower price for the services of those providers. This arrangement is called a network, and plan participants may pay significantly more for the services of providers outside their insurance network. In some cases, insurers may deny coverage for some in-network services—say, for obtaining them without preauthorization.

What Is a Premium?

An insurance premium is the regular amount paid by an individual or their employer to keep their health coverage active. Premiums are usually charged monthly, but employees with employer-sponsored coverage may have a portion of that amount deducted from their paycheck and paid monthly on their behalf instead.

What Is a Deductible?

deductible is an amount an individual must pay each year for medical expenses before their health insurance will contribute to the cost of covered services. Deductibles can be anywhere from $0 to $10,000. Typically, deductibles reset each calendar year.

How Does Health Insurance Work?

Premiums are the easiest expense to budget for, but they’re not the only expense participants need to understand about their insurance plans. It might help to think of insurance coverage in three stages:

  1. First, the individual pays for medical expenses.
  2. Then, once their deductible amount is met, insurance shares the cost of medical expenses with the individual.
  3. Finally, insurance pays for medical expenses once their maximum out-of-pocket amount is met.

It’s also important to note that premium, deductible, and maximum out-of-pocket amounts are lower for policies covering an individual than policies covering a family. And all of these amounts vary by insurer and policy.

Related Terms: Employee Benefits

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