How Does Health Insurance Work?
When you become a member of a health plan, you’re joining a group of people who have also chosen that plan. Insurers call it a risk pool because they measure the amount of risk associated with those people.
Some people are high risk because they are not in good health and likely to use a lot of medical services. Others are lower risk because they are healthy. And let’s not forget unexpected illnesses or injuries that can happen to anyone.
The health insurer does lots of calculations to estimate how much money it will cost to cover the collective medical expenses for everyone in your plan. Each member of the plan pays a monthly rate, or premium.
When you need health care, you and your health insurer share the covered medical costs. Your plan outlines your out-of-pocket costs for each service — whether it’s a copay, deductible, or coinsurance.
Some years you may require lots of medical services, other years you may need less, but the whole point of having it is so you can avoid paying the full cost of medical services on your own. If medical costs are exceptionally high, your health insurer may have to adjust rates from time to time.