Types of health insurance plans | Insurance | Financial Literacy | Khan Academy

So there are three ways that you might be able to get yourself health insurance. The first way is that you just get it directly, and that would be an individual plan. You pay the premium, you get the insurance.

The second way is, many employers will provide insurance. They will pay all of the premium, or a large chunk of the premium. In certain cases, they might even pay a large chunk or the full premium for family members.

And then the third way is the government. You have programs like Medicare for primarily senior citizens, and in some other cases, other folks might qualify as well. You have Medicaid for low-income folks, and you also have government programs for, say, veterans.

Now, as I just alluded to, probably the biggest difference is who actually makes the payment. In the government programs, it's the government who's making the premium payment. In the employer case, it's the employer, and they're doing that with pre-tax money, which matters. They're giving this to you as a benefit, and you do not pay taxes on the money that they are paying for your insurance.

Well, with an individual plan, you pay that out of pocket; you pay that yourself. Now, if you meet certain income guidelines and if you pay enough of a premium above a certain percentage of your income, some of that might be tax-deductible. But it is not fully tax-deductible the same way that when your employer pays for it, you don't have to pay any taxes on that premium that they're providing you at all.

Now, on the individual side, because you are essentially deciding what type of insurance you want, it would give you the maximum choice. Now, in certain cases, that choice is limited because when you're getting an individual plan, they're deciding what the premium is or whether to even insure you based on your situation, whether you have pre-existing conditions, your risk factor, etc.

While with a government or with an employer plan, they're not looking at your individual circumstances. With an employer, the insurance company will say, "Okay, what's the average risk of all the employees?" If you're a higher-risk employee, the employer is going to pay the same premium for you as they're paying for everyone else, and so you get that same coverage.

One potential negative of an employer plan is that it might be a little bit more limited in terms of the coverage options, but that's not always the case. Finally, with government programs, you are going to have probably more limits on what type of health care you might get, but once again, they are fully paying the premium there.

Last but not least, we could talk about deductibles. Generally speaking, the government plans are going to have the lowest deductibles; in some cases, they will have no deductibles. In the case of an employer-sponsored plan or an individual plan, it really depends on which plan you actually get.

So, for a lot of folks, if you're not retired, if you're not low-income, employer-sponsored plans are probably where you want to go. But if your employer doesn't offer those plans, or you're self-employed and you get that insurance yourself, then of course individual plans is what you need to do.