The US Healthcare System Explained: What Every New Resident Should Know
A Beginner’s Guide to Understanding Health Insurance Plans, Costs and Coverage
If you have recently moved to the US, you might have probably heard people say healthcare here is complex and expensive. That is not an exaggeration. Many newcomers only begin to understand the system after a firsthand experience, often during a medical emergency.
The goal of this guide is to give you a basic but practical understanding of how healthcare works in the US, especially when visiting a doctor and to introduce you to key terms you will hear along the way.
Before we dive in, check out my blog comparing the US and India’s healthcare systems. Looking at these differences can help us appreciate what works, what doesn’t and what we can learn to improve healthcare globally.
Understanding Health Insurance in the US
Having health insurance in the US is not just important but it is essential. Medical care can be prohibitively expensive without it. Most people access insurance in one of these ways:
How People Get Insurance:
Through an employer: Most full-time jobs offer health coverage. Employers typically pay part of the premium and employees pay the rest. This often includes medical, dental and vision coverage.
As a student: Colleges and universities usually offer their own health plans, which are required for international students in many cases.
Individually (marketplace or private): Freelancers, interns or those between jobs can buy their own plans via state marketplaces (like Covered California or NY State of Health) or directly from insurers.
Note: You can’t enroll in a new plan any time you want. But if you’ve had a qualifying life event (like job loss, marriage, moving to a new state or having a baby), you are eligible for a Special Enrollment Period to buy or change your insurance plan.
Types of Insurance
Public Insurance (Medicare & Medicaid)
It is funded by the government to help specific groups access essential healthcare. Two major programs include:
Medicare:
Federal health insurance program.
Primarily for people aged 65 and older, younger individuals with certain disabilities and people with End-Stage Renal Disease (ESRD) or Amyotrophic Lateral Sclerosis (ALS).
It has four parts: Part A (Hospital Insurance), Part B (Medical Insurance), Part C (Medicare Advantage) and Part D (Prescription Drugs).
Example: Mr. A, 72, is retired and living in California. He enrolls in Original Medicare (Parts A & B) for hospital and doctor visits and adds Part D to cover prescriptions. He chooses a Medicare Advantage plan later to simplify coverage and get dental benefits.
Medicaid:
Joint federal and state program.
Provides free or low-cost healthcare to people with limited income and resources.
Eligibility and benefits vary by state but often include low-income adults and families, pregnant women and children, seniors needing long-term care and people with disabilities.
Example: Ms. S is a single mom who recently moved to California with her two children. She applies for Medicaid and qualifies based on her income. Her children also receive full coverage through CHIP (Children’s Health Insurance Program), which is linked to Medicaid and provides children with full health coverage.
How to remember: Think “Care” for the elderly and “Aid” for those in need.
Private Insurance
There are various commercial or individual plan types and knowing which kind of plan you are enrolled in can help you avoid unexpected costs. These include:
Health Maintenance Organization (HMO)
Imagine you have a Primary Care Provider (PCP) who acts like your health manager. You always go to them first and if you need to see a specialist, they will guide you and give a referral. Everything you do must be within a network, a group of approved doctors and hospitals. You can’t go outside that network unless it’s an emergency.
How to remember:
Summarize: You maintain your health with the help of your one main doctor who organizes everything for you.
Term Breakdown: Health Maintenance = Focus is on keeping you healthy (preventive care). Organization = All your care is organized within a network.
Preferred Provider Organization (PPO)
You don’t need referrals and you have the flexibility to see any doctor, even outside the network. But, it’s cheaper if you choose from their “preferred” list of doctors and hospitals (in-network). Out-of-network care is allowed, but it’ll cost more.
How to remember:
Summarize: You get to pick your provider, but you’ll pay less if you stick to their preferred list.
Term Breakdown: Preferred Provider = There’s a list of doctors the plan prefers (for lower costs). Organization = Still a structured system, but you have more freedom.
Exclusive Provider Organization (EPO)
This plan is stricter than PPO. You can see specialists directly (no referrals needed), but you must stay within the network. If you go outside, the insurance won’t cover anything (Note: For non-emergencies, coverage is not provided at all).
How to remember:
Summarize: You are exclusive to the network. No out-of-network coverage unless it’s an emergency.
Term Breakdown: Exclusive Provider = You can only see providers in the exclusive network. Organization = Like other plans, it’s a managed group of providers.
Point of Service (POS)
This is like a mix between HMO and PPO. You start with a Primary Care Provider (PCP) and need referrals (like HMO), but you also have the option to go outside the network (like PPO) if you are willing to pay more.
How to remember:
Summarize: At the point of service, you decide to use the network and pay less or go outside and pay more.
Term Breakdown: Point of Service = At the “point” when you need care, you choose: stay in-network for less or go out for more.
High Deductible Health Plan (HDHP)
This plan has a high deductible, meaning you pay more upfront before the insurance starts helping. But the monthly premium is lower, so it works well if you don’t expect to visit the doctor often. This plan is often paired with an HSA (explained next).
How to remember:
Summarize: Pay a higher cost first (deductible), but save monthly. Great for healthy people or savers.
Term Breakdown: High Deductible = You pay more out-of-pocket before coverage starts. Health Plan = It still covers your care, but only after you meet that high deductible.
Health Savings Account (HSA)
This is a special savings account for medical expenses, available only if you have an HDHP. You can put money in it tax-free, use it for health costs and the money rolls over each year, you don’t lose it if you don’t use it. Also note that HSAs are portable which means you keep the money even if you change jobs or insurance plans.
How to remember:
Summarize: A piggy bank just for healthcare which is tax-free and the money is always yours.
Term Breakdown: Health Savings = Save money for health costs in advance. Account = It is your own account and you get to control how and when to spend it.
Key Insurance Terms You Need to Know
When you go to the doctor or hospital, these are the terms that matter most. Understanding them can help you avoid surprise bills and feel more confident navigating your plan.
Premium
The amount you pay every month (or year) to keep your insurance active whether or not you use any services. Think of it as a subscription fee (like Netflix) but for your health coverage.
Example: You pay $200/month (premium) for your health insurance. That’s $2,400 per year, even if you never visit a doctor.
Deductible
The amount you must pay out of your own pocket each year before your insurance begins to pay for most services.
Example: Your deductible is $1,000. If you get a surgery that costs $3,000, you pay the first $1,000 (deductible). Insurance pays its share of the remaining $2,000
Copayment (Copay)
A fixed amount you pay for certain services like a doctor visit or prescription, even after you meet your deductible. Copays usually apply to routine or low-cost services.
Example: Your plan has a $30 copay for primary care visits. You go to your doctor, then you have to pay $30 (copay) at the time of the visit. The rest is paid by your insurance.
Coinsurance
A percentage of the cost you pay after you have met your deductible. Higher premiums usually mean lower coinsurance rates and vice versa.
Example: You’ve already met your deductible. You now need an MRI costing $1,000 and your coinsurance is 20%. Here, you pay 20% of $1,000 ($200) and insurance pays 80% ($800).
Out-of-Pocket Maximum
The most you will have to pay out of pocket in a year for covered services. After you hit this limit, your insurance pays 100% of all covered costs. It only includes deductible, copays and coinsurance (does not include monthly premiums or non-covered services).
Example: Out-of-pocket max = $6,000. You pay your $1,000 deductible, $2,000 in coinsurance and $500 in copays over several visits. Total paid is $3,500. You still have $2,500 left before hitting your out-of-pocket max. Once you reach $6,000, your insurer pays all remaining costs for that year.
Real-Life Scenario:
Mr. A gets sick and needs multiple treatments throughout the year totaling $10,000 in medical costs. He has the below health insurance plan.
Premium: $200/month
Deductible: $1,500
Coinsurance: 20%
Copay: $25 per doctor visit
Out-of-Pocket Max: $6,000
Here is what he will pay if his provider is in-network:
Monthly Premiums: $200 × 12 = $2,400.
Deductible: First $1,500 of his bill is what he will pay in full.
Coinsurance: Next $8,500, he pays 20% = $1,700.
Copays: Let's say he had 10 routine visits at $25 = $250.
Total Out-of-Pocket = $1,500 (deductible) + $1,700 (coinsurance) + $250 (copays) = $3,450.
Because this is under his $6,000 out-of-pocket max, he keeps paying his share. But what if his costs had hit $20,000? Then in such situation, once his total payments reach $6,000 (excluding premiums), the rest will be covered by insurance i.e. 100%.
Coming Up Next
In the next few parts of this series, I will explore how hospitals participate in quality programs, what health plan star ratings actually mean and how care delivery is evolving across the US system, so stay tuned.
If there are specific topics you are curious about, whether it is health innovation, hospital operations or the business of care, I would love to hear from you!