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How does health insurance work? - Growella

Hints For Buying The Best Health Insurance

By Dan Green

Health insurance protects people from the costs of a medical bill. It defrays the fees associated with emergency medical care, hospitalization, maternity and newborn care, and prescription drugs, and more. Health insurance policies can be customized for what you need.

What Does Health Insurance Do?

Health insurance is your protection from life’s medical emergencies.

Health insurance works like this: You pay a monthly subscription fee to a health insurance company, and the health insurance company agrees to pay most, but usually all, of your medical bills.

Health insurance provides money to pay for health care in 10 specific categories:

  1. Emergency medical services, such as ambulance rides to the hospital
  2. Hospitalization for illness or disease
  3. Laboratory tests, such as blood work and tests on tissue specimens
  4. Management of chronic diseases, such as Crohn’s Disease
  5. Maternity and newborn care, including labor and delivery
  6. Mental health and substance abuse treatment
  7. Pediatric services, including vision and dental care
  8. Prescription drugs, including brand name and generic varieties
  9. Preventative care, such as mammograms
  10. Rehabilitation services, such as physical therapy

Note that not all health care is expensive. Routine cancer screenings can be cheap, for example, and so can getting a physical examination.

Clinics often offer these services for free. But, routine check-ups aren’t why you have health insurance.

You have health insurance to protect against emergencies.

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Health insurance covers the medical costs for you and family, which means that you won’t have to choose between getting good health care or paying back student loans , as an example.

Health insurance saves you money.

It can cost more than $10,000 to deliver a baby in a hospital. With health insurance, giving birth can cost less than $100.

It can cost more than $25,000 to have your appendix burst. But, with health insurance, an emergency appendectomy can cost almost nothing.

The benefits of carrying health insurance extend to cancer patients, too.

Instead of draining your emergency fund to pay for treatments, you can have it paid by health insurance.

Remember: Health insurance costs are manageable. Hospital bill costs are not. You get health insurance to protect from those bills.

Without health insurance, the whole of your bank accounts, savings accounts, and retirement fund could be wiped out overnight. Be covered.

Pay A Doctor Bill, Get A Tax Break

Did you know: You can get a tax break every time you pay a doctor bill. It’s possible through the use of a Health Savings Account .

Health Savings Accounts are special bank accounts that exist to pay medical expenses. The ability to use Health Savings Accounts to pay doctor bills was made into law in 2004.

Health Savings Accounts are often known by the abbreviated name, “HSA”.

How an HSA works is pretty straight-forward.

  1. You put money into a savings account at your bank or credit union
  2. You pay your medical expenses using the savings from that account

That’s it. There’s nothing more. Follow those rules and the IRS gives you a tax break.

Actually, the IRS gives you three tax breaks.

First, for every dollar you put in your Health Savings Account, the IRS reduces your taxable income by the same. Put two thousand dollars into your HSA and the IRS has $2,000 less to tax you on.

That’s a really big deal.

Second, the IRS doesn’t tax the earnings on the money in your Health Savings Account.

The interest and dividends you earn in your Health Savings account are totally tax-free, no matter how much money you earn.

And, third, your HSA money gets the tax-free treatment when it’s used to cover medical costs.

So, in summary:

Health Savings Accounts give a triple tax advantage. Not even your retirement plan offers that!

Health Savings Account Offer 3x Tax Benefits

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You can’t abuse your HSA account, though. There are rules to prevent it.

You can’t throw all of your income into an HSA account, as one example. The IRS limits the annual contributions a person can make to their HSA.

After some amount of money, the tax benefits cap out.

You’re also required to use HSA money for legitimate medical expenses, including doctor’s visits and eyeglasses. You can’t use HSA money to pay for maternity clothes or a funeral.

For help paying for a funeral, use a cheap life insurance policy.

Lastly, use of a Health Savings Account is limited to people with high-deductible health insurance coverage. This means that your health insurance plan must require some minimum out-of-pocket costs before its coverage kicks in; and, some maximum out-of-pocket costs after which full health care coverage continues.

You can open a Health Savings Account at just about any bank or credit union. Many will offer no-fee HSA accounts to new customers.

What’s The Best Health Insurance Plan?

When you select a health insurance plan, you’ll be making a trade-off between choices and costs. The more choices you have, the more you can expect to pay.

But even the cheap health insurance plans are pretty good.

So, as you shop for health insurance, consider every program and every health insurance plan. Think about your needs today, and your needs for the next few years.

And don’t forget about doing a Health Savings Account. HSAs help you save money.

HMO Health Insurance: Low Cost, Limited Choice

HMO stands for Health Maintenance Organization. It’s a health insurance plan that blends low costs with limited service.

In an HMO , a group of doctors, hospitals, and clinics form a team. The team agrees upon its prices for various services in advance. Prices are discounted.

As a member of the HMO, you pay a monthly fee for access to the team.

You also select a doctor within the team to act as your primary point-of-contact. When you’re sick or injured, this particular doctor coordinates your medical care within the team.

The doctor will tell you who to see and will make your appointments.

In an HMO, medical care comes from within the HMO team. Exceptions can be made, though, when you’re in need of a particular specialist and your HMO team is without one.

Your only expenses as a member of an HMO are your monthly health insurance costs, and a small fee you pay whenever you visit the office of a doctor in your network — usually $20 or less.

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PPO Health Insurance: Access To Specialists, Plus Tax Benefits

PPO stands for Preferred Provider Organization. PPO health insurance plans offer the widest range of doctors and specialists to its members.

In a PPO , a group of doctors, hospitals, and clinics agree to limit charges for appointments and procedures to everyone who’s a member of a certain health insurance company.

In exchange, the health insurer agrees to offer discounts to its members, which reduces the costs of health care.

When you’re a member of a PPO, your medical costs are capped and discounted when you use the doctors within a team. You’re under no obligation to use these doctors, but medical services are less expensive when you do.

When you have a PPO health insurance plan, you’ll pay some minimum amount for your health care costs each year before insurance coverage kicks in.

This minimum amount is known as a deductible .

Your deductible can be as high or low as you want. There’s an advantage to setting it high, though. When you have a high-deductible health insurance plan, you can make use of a Health Savings Account (HSA) to pay your bills.

When you use a Health Savings Account, you get three separate tax breaks just for paying the bills you’d pay to your doctors anyway.

You get a tax break on the money you put into your HSA; the money grows tax-free in your HSA; and you don’t pay taxes on the gains when you take the money out to pay your doctors.

An HSA can reduce your tax bill significantly. When you choose a PPO health insurance plan, make sure to use an HSA as well.

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EPO Health Insurance: The Cheapest Cost For Coverage

EPO stands for Exclusive Provider Organization. The EPO health insurance plan is the cheapest of what’s available.

In an EPO , doctors, hospitals, and clinics form a very small team with pre-set prices for everyone.

Your EPO health insurance membership gets you access to this team. You can visit any doctor within the network; and use any service at their low, pre-negotiated costs.

Consumers with EPO health insurance plans are allowed to seek medical care outside of their EPO network. Medical costs from outside the network, though, are non-reimbursable. Costs must be paid out-of-pocket.

EPO plans provide health care reimbursement in the case of a true emergency.

How To Get Health Insurance

Health insurance plans can be purchased online, via an employer, or by using an insurance specialist. A specialist will listen to your needs and make a proper recommendation.

With so many choices, it can be good to speak with an expert.

Click here to compare health insurance programs now.

Written by Dan Green

Dan Green is a mortgage lending expert and the founder of Growella. Prior to Growella, Dan was a six-time, top-producing loan officer; and, ranked repeatedly among the top 1% of loan officers nationwide. Dan's home buying expertise has been in print and on TV with The Wall Street Journal, NPR, Forbes, CNBC, and others.

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