What Everyone Should Know About Health Care

ave you ever wondered how health insurance first started here in the United States? The birth of health insurance coverage isn't a clear-cut history. Instead, it's more a series of events that lead to individuals and various institutions, including the government, coming up with plans to meet people's health care needs.

While health care continues to evolve, especially with the passage of the Affordable Care Act, it's important to understand how it started – and the basics of coverage as it stands right now. Here, you'll find a breakdown of how health insurance works under the current system, along with some common terms you may encounter when paying for your family's medical care.

A little history of private health insurance

Our modern health care system involves sophisticated diagnostic tests, state-of-the-art hospitals and highly trained medical professionals. When we get sick, there's an expectation that medical care can provide relief. We might even need a hospital visit for more serious ailments and diseases. To pay for medical services, we may have some costs paid by an employer while we pay monthly premiums and copays (copayments) and/or deductibles at the time of our treatment. This was not always how our health care system worked – or what people expected of medical professionals.

Going back to the early 1900s, most people were treated for ailments in their homes. They paid the doctor directly for their treatments. But those treatments were limited – and the results from treatments were limited, too. As medical advancements began to expand what medicine could offer, hospitals and doctors began attracting more patients, and costs went up.

One hospital in Texas developed a plan – group health insurance. In 1929, Baylor Hospital offered Dallas teachers a chance to be a part of this plan by paying 50 cents a month toward a policy that would cover them for services for up to 21 days in the hospital per year. (This Baylor group health insurance plan eventually became Blue Cross.)

The idea of group health insurance, with employers involved in providing access to these plans, began to take hold. World War II further ingrained the idea as employers offered health insurance plans as a way to woo workers – and the government provided tax incentives for employers to provide these group health policies.

Health insurance coverage systems

Health insurance coverage in the United States can be divided up into three basic approaches.

Employer-based health insurance (private group insurance)

Many Americans receive their health insurance through their employer. The employer arranges a group policy through a private health insurance company (like HAP, for example). The employers cover a portion of the costs for the health insurance policy (called the premium), and the employee covers the rest of the premium costs through a monthly premium, copays and/or deductibles.

Private non-group insurance

Individuals can purchase health insurance policies on their own. Private health insurance companies provide these individual health insurance policies. They typically cost more since they often don't benefit from a group discount and are not partially covered by an employer.

Public health insurance (Medicare, Medicaid, MIChild)

To meet the needs of low-income individuals and families, along with people with disabilities, the government provides health insurance through the Medicaid program. The federal and the state government cover the cost of these medical services. Some programs are designed specifically for children, such as CHIP (Children's Health Insurance Program). MIChild, Michigan's version of CHIP, provides health care for those in need who don't qualify for Medicaid. Medicare covers health insurance through the government to individuals who are ages 65 and older – and to those who are disabled.

Different health care plans

Within the various health insurance coverage systems, you'll have choices as to the type of plan you have. These are the general types of health care plans you'll encounter:

HMOs (health maintenance organizations)

Under these plans, your coverage is generally limited to hospitals and health care providers that are networked with your health insurance provider (called "in-network"). If you obtain services from an out-of-network health care provider, you may have to pay for those services yourself (called "out-of-pocket"). You'll also have to have a referral from your primary care provider (PCP) to see other medical specialists.

How you pay: Along with a monthly premium, you'll probably have a copay each time you visit your health care provider. (Often well-child and other preventative health visits are covered without a copay.)

PPOs (preferred provider organization) and POS (point-of-service) plans

A PPO and POS both are very similar to an HMO, except instead of having a primary care provider who can then refer you to other specialists for treatment, you can choose from a list of in-network doctors for treatment. There's greater freedom of choice with health care professionals and facilities where you can receive medical services.

How you pay: Like an HMO, monthly premiums and copays at the time of medical service are part of the program.

HDHP (high-deductible health plan)

While your monthly premiums for coverage are low with an HDHP, you'll need to meet whatever your annual deductible is before your health insurance provider begins to cover your medical costs. For example, if the year has just started and you haven't had to pay for any medical treatments and you go to see the doctor because you're sick, you'll most likely need to cover the full cost of the visit out-of-pocket.

How you pay: Along with a monthly premium, you'll pay out-of-pocket for health care services until you reach your annual deductible amount. You may be able to arrange to put away pre-tax dollars to pay your deductible costs.

AARP, American Public Health Association, Centers for Medicare & Medicaid Services, Consumer Reports, FAIR Health, Inc., HealthCare.gov, Internal Revenue Service, Kaiser Family Foundation, Medicaid.gov, Michigan Department of Community Health, Michigan Department of Insurance and Financial Services, U.S. Chamber of Commerce, U.S. Department of Health and Human Services, U.S. Department of Veterans Affairs.

Every effort was made to provide clear, accurate information about health care reform. We verified any information we had with first-tier sources – those who are involved in this change and its effect on our health care system. We also relied on well-respected national nonprofits, some who've done a masterful job of providing clear information to consumers. Our primary source of information was the Affordable Care Act's official website, HealthCare.gov. If you need additional information about how health care reform affects you, that would be your best place to start.