Health insurance is insurance against expenses incurred from health care. In the United States, health insurance is a service provided by private companies, but in many countries (including Canada), health insurance is partially or completely funded and administered by the government.
In the United States
In the United States, health insurance is a service provided by private companies. Generally, businesses in the United States negotiate health insurance services for their employees, who then pay for a portion their health insurance with an automatic deduction from their paychecks, although some people buy health insurance services on their own.
There are two types of payments for insurance services under the American model. The periodic payment, paid in order to maintain health insurance coverage, is called the premium. When a worker's insurance pays a medical expense, a certain fixed amount of the expense is paid by the worker. This payment is called the deductible. Some insurance policies require a copayment, which is a minimum amount that must be paid by the patient at each doctor's visit.
While most Americans get health insurance through a private company, the United States federal government does provide insurance to certain US citizens. Impoverished people may be eligible for Medicaid, which is a program funded by the federal government and administered by the states, and elderly and disabled people are eligible for Medicare, which is administered and funded by the federal government. Both involve contracts with private insurance companies to actually administer the plans.
Some health care is provided outside the context of insurance. For example, some people join health maintenance organizations (HMO) instead of purchasing insurance. An HMO collects premiums in exchange for providing health care services directly. If there is health care that the HMO cannot provide itself, it will refer the patient to other organizations and will pay those organizations as if it were an insurance company. Some government agencies, such as the Department of Veterans Affairs operate as if they were HMOs.
Until the passage of the Affordable Care Act, United States health insurance companies sought to limit their financial risk in at least two ways. First, they would not cover any medical condition that a patient had before the policy started ("a pre-existing condition.") Second, some policies had a lifetime cap that limited the total amount that would be paid out during any patient's lifetime. So, if a patient had a very expensive illness, insurance benefits could stop long before the patient died. The ACA outlawed both of these limits.
In the United States, insurance companies are regulated by each state. So, an insurance company must get permission to operate state-by-state. Customers are not free to purchase insurance from out-of-state insurance companies, unless that company has received permission to sell insurance in the customer's state. As a result, some states have only one or two companies offering health insurance to its residents.
Canada has a "single payer plan." Although doctors work independently and control the treatment that their patients receive, all payments for health care services go through the government. The government operates like an insurance company and collects premiums from all citizens (as a special health care tax). Because the government dictates what it will pay for a particular service, overall health care costs do not grow unexpectedly. However, the government is slow to adopt experimental health procedures, and there may be long waits for certain specialized services. Advocates of the Canadian system claim that Canada spends less on administrative and overhead costs than does the United States health insurance system. Advocates of the Canadian system emphasize that it never second-guesses a doctor's determination that something is medically necessary. In contrast, many U.S, insurance companies refuse to pay for tests and services that were ordered by a doctor because the insurance company believes they were unnecessary.
In Canada, health care is the responsibility of each provincial government. (However, the federal government is responsible for services provided to aboriginal peoples covered by treaties, the Royal Canadian Mounted Police, the armed forces, and members of parliament.) This insurance is tax-funded out of general government revenues, although British Columbia and Ontario levy a mandatory premium with flat rates for individuals and families to generate additional revenues (not an income tax). Private health insurance is allowed, but in six provincials only for services that the public health plans do not cover, for example, semi-private or private rooms in hospitals and prescription drug plans. All Canadians are free to use private insurance for elective medical services such as laser vision correction surgery, cosmetic surgery, and other non-basic medical procedures.