Health Insurance Basics
This document provides an overview of important health insurance concepts to help consumers better understand their coverage. It may also serve as a useful reference for consumer advocates who assist individuals with medical billing issues.
Please note that this resource does not cover every aspect of health insurance. For more comprehensive information, refer to the Coverage to Care materials developed by the Centers for Medicare & Medicaid Services (CMS).
What Is Health Insurance and Why Is It Important?
Health insurance is a contract that entitles you to payment or reimbursement for certain health care expenses, typically through an agreement with a health insurance company. It offers critical financial protection in the event of illness or injury.
Health insurance can help pay for:
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Doctor visits and medical treatments
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Prescription medications
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Hospital stays and specialized medical equipment
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Rehabilitation care or home health services
Most plans also contribute to preventive care, helping you stay healthy even when you’re not sick. For instance, they may cover:
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Routine check-ups
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Immunizations
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Cancer screenings and preventive counseling
Many of these preventive services are available at no cost to the insured individual.
What Is a Health Insurance Plan (or Policy)?
A health insurance plan is a structured package that defines the types of health care services and items it will cover and how much the plan will pay for each.
Your plan will outline:
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Which services are covered
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How much the insurer will pay for those services (or service categories)
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The duration of coverage (commonly a plan year or policy year)
In many cases, health insurance is offered as a benefit through an employer, union, or organization to help members pay for health care services.
Types of Health Care Coverage
Health coverage in the U.S. generally falls into two main categories: private and public.
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Private Insurance:
Most Americans have private insurance, obtained through an employer (private or government), purchased directly from an insurance company, or through the Health Insurance Marketplace®.
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Public Insurance:
Some individuals receive coverage through government programs such as Medicare, Medicaid, or the Veterans Health Administration.
Health coverage can also differ based on its scope of benefits or duration.
Comprehensive health insurance typically includes a broad range of benefits, such as:
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Emergency and non-emergency medical care
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Mental health services
In contrast, limited benefit plans provide coverage only for specific needs, conditions, or diseases (often referred to as “excepted benefits” under the Affordable Care Act), such as:
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Vision-only coverage
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Cancer-specific insurance plans