What Health Insurance Covers

Doctors' fees, hospitalization, medication covered within limits.

At present, there is no standardized health insurance available across the entire country. For the most part, the regulation of insurance companies is left to the individual states, although the federal government regulates some kinds of employer sponsored health insurance plans through the Employee Retirement Income Security Act (ERISA).

The basic protection offered by health insurance is payment of fees charged by doctors, surgeons and other medical specialists, as well as the laboratory and diagnostic tests they order for the patient. Both in-patient and out-patient services are generally covered under this type of health insurance. In some instances, the insurance plan also covers the cost of prescription drugs.

Health insurance generally doesn't pay the entire cost charged for these medical services. Through various formulas, the insurance companies compute what they consider to be a reasonable fee for these services. Even if the doctor charges more than this fee, the company will not pay more than what's known as the usual and customary charge. And before it pays anything, you'll almost always be required to pay an annual deductible, such as $250, $500, or even $1,000 for medical expenses before the insurer begins to pick up these costs.

Another common feature of health insurance is coverage for hospitalization. With hospitalization coverage, the agrees to pay a daily rate for a hospital room (typically, this coverage applies only to semi-private rooms), although the insured has the option of paying the difference if he wants a private room.

In addition to the limit on the daily rate paid for a hospital room, the health insurance policy may also set a limit on the number of days for which coverage will last, which is based on the type of illness which resulted in the need for hospitalization. For example, a hospital stay to undergo a hemorrhoidectomy may only be covered for three days, while a stay for brain surgery will almost certainly be covered for a much longer period.

In addition to the cost of the hospital room, hospitalization insurance usually will cover other expenses incurred during the hospital stay, such as medications, therapy and tests ordered by your doctor.

In some instances the coverage provided under hospitalization and health plans can be exhausted if a long-term illness, expensive surgery or other costly treatment is required. To protect against these high medical expenses health insurers provide what's known as major medical coverage, either as a separate policy or in combination with the medical and hospitalization provisions outlined above.

The costs covered under the major medical provisions are usually limited to a certain percentage of the total bill up to a specified dollar limit, and after a deductible has been paid by the insured. Once the deductible is paid and the dollar limit is reached the insurer then picks up the rest of the cost, up to the limits of your policy. Let's see how this would work in real life.

Suppose a hospital stay results in a $60,000 bill. Your policy carries a $1,000 deductible, covers 75 percent of major medical expenses up to $5,000 (called the co-payment) and then pays 100 percent of recognized expenses. Your total out-of-pocket expenses for the hospital stay under this policy would equal $2,250, or your deductible plus $1,250, which represents your 25 percent co-payment. The insurer would pick up the rest.