How Does Health Insurance Work?

Sep 5 / Jay Zigmont, PhD, MBA, CFP®

Health insurance in the U.S. comes with a lot of terms and despite all the money we spend on it, it doesn't work particularly well. But since this is the system we've all got to navigate, let's go through some concepts you'll encounter in the course of getting (and staying) insured.

Health Insurance 101

It's important to remember that no health insurance plan will cover every medical expense you have. Most plans have a few different components and when you sign up, you'll have access to information about what is covered (and what isn't), as well as what costs you'll be responsible for. Here are some terms and what they mean.

ACA Provisions

If you have a preexisting health condition, it is no longer a barrier to getting insurance coverage, thanks to the 2010 Affordable Care Act (more commonly known as Obamacare). The ACA also required health insurance plans to cover certain procedures, including sterilization for both men and women (which is often of particular interest to Childfree people).

Open Enrollment

Once a year, you can change your health insurance coverage to a new plan. If you have a qualifying life event (like getting married/divorced or changing jobs/work situations), you can also generally change your coverage then.

In Network vs. Out of Network

All insurance plans have in-network coverage; this is a selection of medical providers they work with, and the billing for services is much simpler. But you can also see out-of-network medical care providers, with the caveat that you will pay more, and may have to pay the provider directly and wait to be reimbursed by your insurer. Ideally, to save money, you'll see in-network doctors and go to in-network hospitals and clinics.


If the medical care you're receiving is from an in-network provider and is covered by your insurer, you'll often still have a copay. This will be a nominal amount of money (from perhaps $25 for a general care doctor to $75 for urgent care, to $500 for an emergency room visit, and so on; it'll vary based on your insurer) that you'll be required to pay, usually at the time of your appointment or care.


A health insurance deductible is the amount of money you pay before your insurance policy takes over the cost of your care. They come in single and family varieties, depending on the type of policy you have. High deductible plans have a deductible of at least $1,500 for a single person (and if you're part of a Childfree couple, you'll likely each have a single plan) in 2023.

Out-of-pocket Max

Your out-of-pocket max is the maximum amount of money you'll have to pay before your insurer picks up the tab for the rest of your medical care. And yes, this is different from your deductible, because it includes copays and coinsurance. (Doesn't it seem as if you need a business degree to understand how your health insurance coverage works?) The good news is that if you hit this figure, all the rest of your care will be paid for. So if you have a need for any elective surgeries, this is the time to get them done.

Medicare and Medicaid

Both Medicare and Medicaid are federal government health insurance intended for people older than 65 and those under a certain income threshold, respectively.

Health Insurance is Complicated

As you can see, figuring out all the finer points behind your insurance coverage is a real headache. And medical care for your teeth or vision is often not included in a standard health insurance plan, either. If you need help figuring out medical care, reach out to a CFP® professional. Medical debt is the leading reason for Americans to declare bankruptcy, so understanding health insurance (or trying to!) is important.
Jay Zigmont, PhD, MBA, CFP® is the Founder of Childfree Wealth, a life and financial planning firm dedicated to helping Childfree and Permanently Childless people. Dr. Jay is a CERTIFIED FINANCIAL PLANNER™, Childfree Wealth Specialist, and author of the book “Portraits of Childfree Wealth.” Dr. Jay is the co-host of Childfree Wealth Podcast. His Ph.D. is in Adult Learning from the University of Connecticut.

He has been featured in Fortune, Forbes, MarketWatch, Wall Street Journal, New York Times, Business Insider, CNBC, and many other publications.