There are two categories of health insurance: government offered insurance and privately funded insurance. Government insurance comes in the form of Medicaid, Medicare, and Tricare. Each of these have limitations that determine if someone is eligible to receive assistance. For example, Medicaid is offered to people who have low income. Privately funded insurance is offered by various corporations, but most people have access to these services through their place of work. People can also apply to these companies on their own, but there are often strict limitations to determine who is eligible for service.

It is also important to know that there are also three types of insurance available. These three types are consumer-directed, fee for service, and managed care. Each of these contribute to a variety of health needs, such as medical visits, surgical needs, prescription drugs, hospital expenses, and sometimes even mental health issues. Not all plans cover all needs, but they usually cover a combination of them.

Fee for service plans work by paying the health care provider a fee for each service they provide. Managed care plans come in difference types – health maintenance organizations (HMO), preferred provider organizations (PPO), and point of service plans (POS) – and offer comprehensive services to their clients. They also offer financial rewards for people who visit a list of physicians within a certain network.

After these basic types of service there are a few more terms that people should be aware of. A premium is a fee that you or an employer pays in exchange for the health insurance plan. A deductable is the amount a person must pay before their health insurance covers anything. Co-payments are the percentage of each cost that the patient needs to pay. All of these fall under the category or out-of-pocket costs.

This information is only the beginning, but it is a start for those wanting to better understand the U.S. health care system.

(note, this MAY vary from policy to policy, so it’s recommended you shop around a little)

What is the benefit of this? Well, for one, you can save a ton of money up front. For folks who are self employed, or have to pay their own insurance premiums for another reason, the difference in the monthly cost is significant.

For example, a traditional PPO plan with a $500 deductible would cost me around $300/month, where my HDHP costs me about $50. A dramatic savings, no?

On top of that, you get 100% co-insurance. What does this mean? You know that $300/month PPO plan? That only covers 80% of my medical costs after the deductible (up to a certain amount). This means I might still be on the hook for $500/day if I have to stay in the hospital or have surgery. With the HDHP, the most I will ever have to pay is the deductible – which I can offset by having a tax-deferred HSA!

Now, these plans don’t work for everyone of course – those with medical conditions that require regular care or have a good PPO/HMO plan provided by their employer at a lower cost to them might not need it. But as health care costs continue to rise, you can bet the HDHP will on everyone’s radar for a long time!