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Think of health insurance as a financial safety net for healthcare. In exchange for paying monthly premiums, your insurance company helps you cover medical bills when you need care. You can get coverage through your employer as part of your benefits package or government programs like Medicare and Medicaid, which serve specific groups. You also have the option to buy individual plans through health insurance marketplaces or directly from insurance companies.
Health insurance opens doors to medical care you might otherwise miss, helps shield you from crushing medical debt, and supports your overall wellness by making healthcare more affordable and accessible. But with so many choices — literally hundreds of companies — shopping for health insurance can feel overwhelming. This comprehensive guide will help you learn the lingo, navigate the system and feel empowered to make more informed decisions.
How Health Insurance Works
There are several types of health insurance, and they will have different enrollment periods, payment structures and coverage rules. This is all part of the health insurance system. Understanding these processes can help you maximize your benefits and avoid surprise bills.
Here’s a comprehensive breakdown of how health insurance functions:
Enrollment deadlines and requirements
Most people in the U.S. have private health insurance, either provided through an employer or purchased directly. In employer-based health insurance plans, many employers pay part of their employees’ health insurance costs. If you don’t have employer-based health insurance, you can buy your own policy directly from a health insurance company or through a Health Insurance Marketplace. Most states have a Health Insurance Marketplace where you can see plans and prices for individual health plans in your state. To find your state’s Health Insurance Marketplace, go to Healthcare.gov and apply for coverage.
The open enrollment period runs from November 1 to January 15 each year. To get coverage starting January 1, you must enroll by December 15. Enrollments between December 16 and January 15 will start coverage on February 1.
To enroll in health insurance, you’ll need to provide certain information. This may include current insurance details (if any), income documentation or information about those in your household who’ll be covered.
Special enrollment periods are available if you experience qualifying life events. Life events may include birth or adoption, marriage or divorce, relocation to a new coverage area or loss of existing insurance coverage.
When does health insurance coverage start?
For Marketplace plans, coverage typically begins the first day of the month following enrollment and initial premium payment. Employer-sponsored plans may have waiting periods ranging from 30 to 90 days before benefits activate.
Your coverage start date varies based on a variety of factors. These may include when you complete the enrollment process, the type of insurance plan you sign up for, the timing of your premium payment or when a qualifying life event occurs.
Prior authorization process for medical services
Prior authorization (PA) is a measure that requires insurance approval before payment for certain medical services provided if it is not an emergency. To get approval, your healthcare provider must submit documentation explaining the medical necessity. The insurance company will review these requests against established criteria before approving or denying coverage. The requirement for prior authorization will vary by health plan.
Services that may need prior authorization include:
- Medical equipment, such as an oxygen mask or IV pump
- MRI and CT scans
- Non-emergency surgeries
- Specialist referrals
- Specialty medications
How long do prior authorization approvals take?
How long you wait depends on the type of request your doctor submits. It can take up to 30 days for your insurance company to review the request, and they may ask for more information. If your doctor indicates that the request is urgent, you should receive a response within 72 hours.
Pro Tip: Work closely with your healthcare provider to submit complete documentation and keep detailed records of all communications during the process.
Paying your premium
Health insurance companies offer different types of policies with a wide range of premiums to accommodate different budget needs. In general, plans with lower monthly premiums mean higher costs when you need care, while plans with higher premiums provide more predictable expenses with lower deductibles and copays. The right balance depends on your financial situation and health needs. If you’re young and healthy, you might choose a high-deductible plan, which has lower monthly premiums to save on your monthly costs. Families with ongoing medical needs might benefit from higher premiums with lower out-of-pocket costs to avoid large costs when they need care.
Pro Tip: Set up automatic payments to avoid coverage lapses and termination of benefits.
Meeting your deductible
A deductible is the out-of-pocket amount you pay for covered healthcare services before your health insurance policy begins to cover costs for the year. Here are a few examples and key points to consider:
- A $1,500 deductible means you pay the first $1,500 in medical costs before insurance kicks in.
- Deductibles reset annually.
- Many plans cover preventive care at 100% without meeting the deductible, meaning annual physicals and some preventive care tests are paid by the insurance company with no cost to you.
- Some plans have different deductibles for in-network vs. out-of-network care. (See “Common Health Insurance Terms” below to learn the differences between the two.)
Copays and coinsurance
Cost sharing, or patient responsibility, is the amount you owe out of pocket. If you have insurance, this could include copayments and coinsurance. Copayments, or copays, are a fixed amount that is paid at the time of service. Coinsurance is a predetermined amount or percentage of the total cost of service that you pay for care, after you have paid your deductible.
Here are a few common scenarios to help you understand your cost-sharing responsibilities.1
| Cost type | Description | Examples | Key notes |
|---|---|---|---|
| Copays |
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| Coinsurance |
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Different Types of Health Insurance Plans
There are three main types of health insurance plans:
- Employer-sponsored plans
- Individual and family plans (IFP)
- Government programs
Employer-based insurance plans
Employer-sponsored plans are offered through workplaces, with the employer typically contributing to the premium cost. Most Americans (under age 65) receive health coverage through their employers.
Key benefits of this arrangement include:
- Employer contributions reduce monthly premiums
- Pre-tax payroll deductions lower taxable income
- Multiple plan options may be available to you during open enrollment
- Plans that offer coverage for spouse and dependents
- COBRA continuation rights if leaving employment
Individual and family plans (IFP)
Individual and family plans are purchased directly by people from insurance companies, either on or off the Health Insurance Marketplace. IFP provides coverage to self-employed individuals, students, those who have lost job-based coverage or those whose employers don’t offer health benefits.
IFP Health Insurance Marketplace plans offer comprehensive coverage with important features:
- Annual open enrollment period
- Cost-sharing reductions
- Essential health benefits required by law
- Income-based premium tax credits
- No denials for preexisting conditions
Government programs
Government plans are available based on age, income or other eligibility criteria. Medicare and Medicaid are both government-funded health insurance programs, as is the Veterans Health Administration.
Health Insurance Network Types at a Glance
This comprehensive table breaks down the major plan types and coverage options available to you.
| Plan type | Network flexibility | Cost structure | Best for | Key features |
|---|---|---|---|---|
| EPO (Exclusive Provider Organization) | In-network only (except emergencies) | Moderate premiums and deductibles | You want PPO-style access without the high costs | No referrals needed, zero out-of-network coverage |
| HMO (Health Maintenance Organization) | Most restrictive — must stay in-network | Lower premiums, lower deductibles | You prefer predictable costs, and your doctors are in-network | Your primary care physician must make referrals to specialists |
| PPO (Preferred Provider Organization) | Most flexible — can go out-of-network | Higher premiums, moderate deductibles | You want to keep your doctor, or you travel out of network frequently | No referrals needed, but you’ll pay more out-of-network |
| POS (Point of Service) | Mix of HMO and PPO features | Varies by in-/out-of-network use | You want some flexibility with cost control | Requires a primary care physician but allows out-of-network care |
Special coverage options: High-deductible health plans (HDHP)
HDHPs have low monthly premiums and very high deductibles. Paired with a tax-advantaged savings account, HDHPs may be an option, especially if you’re healthy and prioritize low monthly premiums.
| Coverage type | Who qualifies | Key features | 2025 deductible/out-of-pocket limits | Ideal situation |
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| Catastrophic |
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| HSA-qualified high deductible |
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| Fee-for-service (indemnity) |
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What Health Insurance Does and Does Not Cover
Health insurance aims to provide you with the preventive care and medical care you need when you need it most by covering medically necessary services such as these:
- Annual checkups
- Diagnostic procedures
- Doctor visits (after meeting deductible)
- Emergency room care
- Health screenings
- Hospital stays
- Laboratory testing
- Medical services
- Preventive care
- Routine vaccinations (including flu shots and COVID-19 vaccines)
- Urgent care visits
Most health insurance doesn’t cover the following:
- Alternative medical treatments. Treatments such as acupuncture, herbal medications and massage
- Cosmetic surgery. Surgical treatment that is not considered medically necessary for your health, including things like liposuction, rhinoplasty, spider vein surgery and plastic surgery
- Experimental treatments. Surgeries and other medical treatments that are medically unproven
- Elective care. Medical procedures, scheduled in advance, that are not necessary for survival, such as cataract surgery, joint replacements, and hernia repairs
- Unapproved medical procedures. Medically necessary care that your doctor recommends (e.g., weight loss surgery) may still be denied if you don't get prior approval for the procedure
Verify Your Doctor and Prescription Coverage
When shopping for the right health insurance plan, it’s important to research whether the new plan will cover your current doctors and medications. Most insurance plans also have a provider directory you can search to determine whether your physician is an in-network provider. It’s important to note that if your doctor is not in-network, your health insurance may deny your claim or reduce the amount paid.
Common Health Insurance Terms
Lost in the jargon of health insurance? Learn important terminology and phrases by using our glossary.
| Term | Definition |
|---|---|
| Coinsurance | This is your share of costs for covered services after meeting your deductible, usually expressed as a percentage (e.g., 20% of the allowed amount). |
| Copay | You pay a fixed amount (like $25) for a covered healthcare service at the time of service. Different services may have different copay amounts. |
| Deductible | This is the amount you must pay for covered healthcare services before your insurance plan starts paying. For example, with a $2,000 deductible, you pay the first $2,000 of covered services yourself. |
| In-network provider | This refers to healthcare providers who have contracted with your insurance plan to provide services at negotiated rates. Using these providers typically costs you less. |
| Metal tiers | Bronze, silver, gold and platinum tiers help consumers compare plans and strike a balance between monthly premiums and out-of-pocket costs like deductibles, copayments and coinsurance. |
| Out-of-network provider | Healthcare providers who don’t have a contract with your insurance plan. Using these providers usually results in higher out-of-pocket costs. |
| Out-of-pocket maximum | This is the most you'll pay for covered in-network services in a plan year. After you reach this amount, your insurance pays 100% of covered in-network services. |
| Preexisting condition | This is a health problem that existed before the start date of the new health coverage. Under current law, health plans can’t refuse to cover or charge more for preexisting conditions. |
| Premium | The premium is the monthly amount you pay for your health insurance coverage, regardless of whether you use medical services. |
| Preventive care | Healthcare services like annual checkups, vaccinations and screenings are designed to prevent illness or detect problems early. Preventive care is often covered at 100%. |
| Primary care physician (PCP) | Your PCP is the doctor you see for most of your medical care, who coordinates your overall healthcare and refers you to specialists when needed. |
| Prior authorization | You may need approval from your insurance company before certain services or prescriptions are covered. It's also called “pre-authorization” or “prior approval.” |
| Waiting period | There is a waiting period after enrolling before your coverage begins. This can be up to 30 days, or in some employment situations, up to one year. |
How Much Does Health Insurance Cost?
The average annual cost of individual health insurance in 2024 was $8,951, while family coverage was $25,572.3 Factors influencing these premiums include age, tobacco use, plan type and whether the coverage is for an individual or a family.
Location is another factor that might influence how much coverage costs. As you can see, the average monthly premium costs vary widely across all 50 states and the District of Columbia.4
| State/District | Monthly premium (benchmark) |
|---|---|
| Alabama | $535 |
| Alaska | $1,045 |
| Arizona | $410 |
| Arkansas | $458 |
| California | $512 |
| Colorado | $463 |
| Connecticut | $693 |
| Delaware | $534 |
| District of Columbia | $578 |
| Florida | $515 |
| Georgia | $493 |
| Hawaii | $493 |
| Idaho | $436 |
| Illinois | $474 |
| Indiana | $382 |
| Iowa | $429 |
| Kansas | $513 |
| Kentucky | $442 |
| Louisiana | $524 |
| Maine | $546 |
| Maryland | $365 |
| Massachusetts | $447 |
| Michigan | $404 |
| Minnesota | $363 |
| Mississippi | $485 |
| Missouri | $489 |
| Montana | $554 |
| Nebraska | $600 |
| Nevada | $414 |
| New Hampshire | $325 |
| New Jersey | $492 |
| New Mexico | $515 |
| New York | $790 |
| North Carolina | $507 |
| North Dakota | $537 |
| Ohio | $441 |
| Oklahoma | $501 |
| Oregon | $510 |
| Pennsylvania | $461 |
| Rhode Island | $425 |
| South Carolina | $471 |
| South Dakota | $619 |
| Tennessee | $516 |
| Texas | $489 |
| Utah | $547 |
| Vermont | $1,277 |
| Virginia | $372 |
| Washington | $434 |
| West Virginia | $919 |
| Wisconsin | $495 |
| Wyoming | $871 |
Make Informed Health Insurance Choices
Now that you know the basics of health insurance, you can make smart decisions about your medical treatment. When shopping for a new health insurance plan, choose one that covers your medical needs at a cost you can manage. Make sure you fully understand the terms of your health insurance policy so that you know what types of health insurance benefits it includes and excludes.
Managing Health and Wellness Costs With the CareCredit Credit Card
If you are looking for an option to help manage your health and wellness costs, consider financing with the CareCredit credit card. The CareCredit credit card can help you pay for the care you want and need and make payments easy to manage.* Use our Acceptance Locator to find a provider near you that accepts CareCredit. Continue your wellness journey by downloading the CareCredit Mobile App to manage your account, find a provider on the go and easily access the Well U blog for more great articles, podcasts and videos.
Your CareCredit credit card can be used in so many ways within the CareCredit network including vision, dentistry, cosmetic, pet care, hearing, health systems, dermatology, pharmacy purchases and spa treatments. How will you invest in your health and wellness next?
Expert Reviewer
Patty Caballero
Patty Caballero has more than 25 years of health insurance knowledge and has worked for some of the biggest health insurance companies in the U.S. Her experience also includes building brands and working on strategic initiatives to help consumers better understand their health benefits.
Author Bio
Pamela Cagle, R.N., has extensive experience in a range of clinical settings, including ER, surgical and cardiovascular. For the past decade, she has leveraged her nursing experience in writing for health and technology publications such as AARP, VKTR, National Council on Aging and others. She is passionate about blending her medical and storytelling expertise to bring authenticity to health and wellness topics.
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