What is health insurance?

Your guide to understanding how health insurance works.

What you need to know

Health insurance is an insurance product designed to cover medical expenses. Medical expenses include, but are not limited to, preventative care, emergency services, surgeries, and prescription medication. Health insurance is similar to other types of insurance in that you pay a monthly premium in order to access the plan.

Health insurance doesn't always cover all of your medical costs; your total out-of-pocket costs may include your deductible the amount you have to spend before health insurance kicks in), your copayments (a fixed amount you pay for certain services or medication), and your coinsurance (a percentage of the cost that you pay for certain services or medication).

In order to be considered "qualifying health coverage" as defined by the Affordable Care Act, a health insurance plan must have the minimum essential coverage (MEC). All plans purchased through the marketplace need to meet these requirements. To meet MEC requirements, plans need to follow all new rules and regulations laid out by the Affordable Care Act, including the ten essential health benefits, affordability standards, and guaranteed coverage of pre-existing conditions.

All health insurance plans have a maximum out-of-pocket limit that limits that amount you have to spend on medical expenses every year. The maximum out-of-pocket limit for 2017 is $7,150 for individual plans and $14,300 for family plans.

If you don't have qualifying health coverage for more than three or more consecutive months, you will have to pay a fee on your federal tax return. The tax fee is calculated in one of two ways: 1) 2.5% of your household income or 2) $695 per person / $347.50 per child under 18. You will pay whichever is higher.


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