How Health Insurance Works in the United States

The Basics of Health Insurance

Health insurance is a contract between an individual and an insurance provider, where the insurer agrees to cover a portion of medical expenses in exchange for regular payments called premiums. In the U.S., health insurance is primarily accessed through employer-sponsored plans, ACA Marketplace plans, Medicaid, Medicare, or private individual plans. According to the Kaiser Family Foundation (KFF), 54.5% of non-elderly Americans had employer-based coverage in 2022, while 21% relied on Medicaid.

When you enroll in a health insurance plan, you pay a monthly premium to maintain coverage. In return, the plan covers a range of services, including hospitalizations, doctor visits, prescription drugs, preventive care, and sometimes dental or vision care. However, most plans require cost-sharing mechanisms like copayments (fixed fees for services), coinsurance (a percentage of costs), and deductibles (the amount you pay out-of-pocket before insurance kicks in).

Types of Health Insurance Plans

The U.S. offers several types of health insurance plans, each with distinct features:

• Health Maintenance Organization (HMO): HMOs limit care to a network of providers and require referrals to see specialists. They often have lower premiums but less flexibility. For example, Kaiser Permanente’s HMO plans are popular for their integrated care model.

• Preferred Provider Organization (PPO): PPOs offer more flexibility, allowing you to see out-of-network providers at a higher cost. They typically have higher premiums but are favored for their freedom of choice. About 47% of covered workers were enrolled in PPOs in 2023.

• High-Deductible Health Plans (HDHPs): These plans have lower premiums but higher deductibles, often paired with Health Savings Accounts (HSAs) to save for medical expenses tax-free. HDHPs covered 29% of workers in 2023.

• Medicaid and Medicare: Medicaid provides coverage for low-income individuals, covering 21% of the population, while Medicare serves those over 65 or with disabilities. Both are government-funded and have minimal out-of-pocket costs.

The Role of the Affordable Care Act (ACA)

Enacted in 2010, the ACA transformed the U.S. health insurance landscape by mandating coverage for all Americans, prohibiting insurers from denying coverage due to pre-existing conditions, and establishing Health Insurance Marketplaces. These marketplaces allow individuals to compare and purchase plans, often with subsidies for those with incomes below 400% of the federal poverty level (e.g., $58,320 for an individual in 2025). The ACA also expanded Medicaid in 41 states, reducing the uninsured rate from 18% in 2010 to 8.6% in 2023.

Despite these advancements, the ACA faces challenges. Some states have not expanded Medicaid, leaving millions without affordable options. Additionally, the temporary enhanced Marketplace subsidies, extended through 2025 under the Inflation Reduction Act, may expire, potentially increasing premiums for many.

How Claims and Coverage Work

When you receive medical care, your provider submits a claim to your insurer. The insurer reviews the claim to determine coverage based on your plan’s terms, such as in-network vs. out-of-network providers and covered services. If approved, the insurer pays its share, and you cover any copays, coinsurance, or deductible amounts. For example, a $5,000 hospital bill with a 20% coinsurance and $1,000 deductible might leave you owing $1,800 ($1,000 deductible + 20% of the remaining $4,000).

The No Surprises Act of 2022 protects consumers from unexpected out-of-network bills, ensuring fair billing practices for emergency services and certain non-emergency care. Compliance with this law is a key focus for insurers in 2025.

Principal Benefits of Health Insurance

Health insurance offers numerous advantages, enhancing both health outcomes and financial stability. Below are the key benefits, supported by recent research.

Access to Preventive and Routine Care

Health insurance ensures access to preventive care, such as vaccinations, cancer screenings, and annual check-ups, often at no additional cost under ACA-compliant plans. Studies show that insured individuals are more likely to receive timely screenings, reducing the risk of severe conditions like cancer or heart disease. For example, uninsured adults with hypertension are less likely to be screened or take prescribed medications, leading to worse health outcomes.

Financial Protection Against High Costs

Medical expenses in the U.S. are among the highest globally, with per capita healthcare spending reaching $12,555 in 2022. Health insurance mitigates this burden by covering costly procedures like surgeries or emergency care. For instance, a single hospitalization can cost tens of thousands of dollars, but insurance significantly reduces out-of-pocket expenses. A 2025 Gallup poll found that 12% of Americans borrowed $74 billion in 2024 to cover medical costs, highlighting the financial strain without coverage.

Improved Health Outcomes

Research consistently links health insurance to better health. A 2022 study found that uninsured accident victims received 20% less care and had a 37% higher mortality rate than insured patients. Insurance also improves chronic disease management, such as better blood pressure control for hypertensive patients, as demonstrated in the RAND Health Insurance Experiment.

Mental Health and Specialty Care Access

The ACA mandates coverage for mental health and substance use disorder services, increasing access to therapy and addiction treatment. Insured individuals are more likely to seek mental health care, with treatment rates for depression tripling from 1987 to 1997 among insured adults. Plans like those from Aetna and Cigna integrate mental health services with pharmacy benefits, enhancing care coordination.

Economic and Social Benefits

Health insurance boosts workforce productivity by reducing absenteeism and disability from untreated conditions. For example, diabetes-related productivity losses cost the U.S. $73.7 billion annually, which insurance can mitigate through preventive care. Additionally, coverage reduces financial stress, as 41% of adults reported medical debt in 2022, with uninsured individuals facing higher debt burdens.

Disadvantages of Not Having Health Insurance in 2025

The absence of health insurance in 2025 carries severe consequences, exacerbated by rising healthcare costs and legal frameworks. Below are the primary disadvantages.

Limited Access to Care

Uninsured individuals are 2.5 times more likely to lack a regular source of care, relying on emergency rooms or safety-net providers like community clinics, which have limited capacity. In 2023, 49% of uninsured adults reported difficulty affording healthcare, and 9.3% skipped doctor visits due to cost. This delays treatment, worsening conditions like diabetes or infections, as seen in cases where uninsured patients developed gangrene from untreated issues.

Financial Ruin and Medical Debt

Without insurance, individuals pay nearly 40% of medical costs out-of-pocket, often at higher rates than insured patients. A 2019 study found that 67% of bankruptcies were due to medical debt, affecting 530,000 families annually. In 2025, 25% of those with medical debt owe over $5,000, with 17% facing bankruptcy or home loss. Unexpected bills, such as a $500 emergency expense, are unaffordable for half of adults without insurance.

Poorer Health Outcomes

Uninsured individuals face higher mortality and morbidity rates. For example, uninsured trauma patients had a 5.2% mortality rate compared to 3.8% for insured patients. Lack of coverage also limits access to prescription drugs, exacerbating chronic conditions. In 2023, 62% of uninsured adults had healthcare debt, reflecting delayed care and worsening health.

Legal and Social Consequences

While the ACA’s individual mandate penalty was repealed in 2019, some states impose their own penalties for being uninsured. Additionally, high uninsured rates strain public hospitals, contributing to rural hospital closures and reduced care access. Socially, uninsured individuals face stress and reduced quality of life, with 63% cutting back on essentials like food to cover medical costs.

Economic Impact

Uninsured workers are less productive due to untreated health issues, costing the economy billions. For example, prostate cancer alone causes $5.4 billion in lost productivity annually. The lack of coverage also perpetuates health inequities, with Hispanic and Black adults less likely to be insured than White or Asian adults in 2023.

Top 5 Cost-Effective Health Insurance Providers in 2025

Choosing a cost-effective health insurance provider involves balancing premiums, deductibles, network size, and customer satisfaction. Based on recent analyses from Forbes Advisor and Insure.com, here are the top five providers in 2025.

1. Kaiser Permanente

• Why It’s Cost-Effective: Kaiser Permanente tops rankings for ACA plans due to its low premiums and high customer satisfaction (4.2/5 from the National Committee for Quality Assurance). Its HMO model integrates care, reducing costs. It also has a low complaint index (0.37 vs. the NAIC average of 1.0).

• Key Features: Affordable bronze and silver plans, strong preventive care, and telehealth services.

• Availability: Limited to eight states and Washington, D.C.

2. UnitedHealthcare

• Why It’s Cost-Effective: UnitedHealthcare offers competitive premiums and a vast provider network, with a superior AM Best financial stability rating (A+). Its complaint index (0.24) is among the lowest, and 85% of customers plan to renew.

• Key Features: Wide ACA Marketplace presence (23 states), flexible PPO plans, and robust mental health coverage.

• Availability: Nationwide, with varying ACA plan availability.

3. Aetna (CVS Health)

• Why It’s Cost-Effective: Aetna provides affordable bronze plans and unique benefits, like a $25 quarterly CVS allowance. Its NCQA rating (3.24/5) and partnership with CVS MinuteClinics enhance accessibility.

• Key Features: No-referral HMO plans, telehealth, and discounts on CVS products.

• Availability: ACA plans in 17 states.

4. Oscar

• Why It’s Cost-Effective: Oscar excels in low-cost bronze plans and user-friendly digital tools, including virtual care and price transparency apps. Its NCQA rating is solid (3.5/5), and it’s praised for affordability.

• Key Features: 24/7 virtual doctor visits, transparent pricing, and rewards for healthy behaviors.

• Availability: 20 states, primarily urban areas.

5. Molina Healthcare

• Why It’s Cost-Effective: Molina ranks high for affordability, especially for low-income families eligible for Medicaid or Marketplace subsidies. It earns 3.6/5 stars from Insure.com, with strong customer satisfaction.

• Key Features: Low-cost plans, focus on underserved communities, and comprehensive preventive care.

• Availability: 17 states, with a focus on Medicaid expansion states.

Conclusion

In 2025, health insurance remains essential for navigating the high-cost U.S. healthcare system. By covering preventive care, reducing financial risks, and improving health outcomes, insurance provides critical benefits. Conversely, the lack of coverage leads to delayed care, medical debt, and poorer health, with significant economic and social consequences. Choosing a cost-effective provider like Kaiser Permanente, UnitedHealthcare, Aetna, Oscar, or Molina can help balance affordability and quality. As the ACA’s subsidies face potential expiration and healthcare costs rise, staying informed and insured is more important than ever.

Sources

1. Kaiser Family Foundation. (2024). Key Facts about the Uninsured Population. Retrieved from https://www.kff.org

2. Forbes Advisor. (2025). Best Health Insurance Companies of 2025. Retrieved from https://www.forbes.com

3. Insure.com. (2025). Best Health Insurance Companies of 2025. Retrieved from https://www.insure.com

4. National Center for Biotechnology Information. (2022). Effects of Health Insurance on Health. Retrieved from https://www.ncbi.nlm.nih.gov