Health insurance is a form of insurance designed to protect individuals against loss due to ill health. It is a contract between an insurance company and an individual. It may also be a contract between an insurance company and a sponsor such as an employer. This type of contract is renewable, depending on the length of time specified. Most health insurances, however, are renewable annually.

There are two main types of health insurance: the indemnity and managed care. Indemnity insurance is also referred to as fee-for-service, which gives the policyholder greater control than managed care. However, the cost of maintaining indemnity insurance may be higher. With indemnity insurance, the policyholder is allowed to choose the hospital or medical provider he or she wishes to go to.

Insurance should cover the cost of the services performed as long as it is stated in the terms of the policy. However, indemnity insurance policyholders have to pay a deductible before the insurance company can pay claim that is made against the policy. Also, if the doctor charges for more than the average rate determined in the area, the insurance company may require the policyholder to pay for the difference.

This type of coverage covers only illnesses and accidents. Preventive care options such as birth control or flu shots are not included. When it comes to prescription medications or psychotherapy, payment by the insurance company depends on what is indicated in the policy.

Indemnity coverage allows the patient to visit a specialist without the need of permission from the primary care physician. This type of insurance also offers a cap, which is the amount of money the policyholder should pay for medical bills a year. Once this amount is exceeded, the insurance company completely pays for services that are covered by the insurance policy. However, the cap does not include the amount paid for in premiums.

In contrast with this policy, managed care coverage deals with a health maintenance organization (HMO). Deductibles are often smaller or may even be eliminated fully and co-payments are also lower. Preventive care, medication, and mental health may also be included in the plan. However, the downside of the managed care coverage is that only the doctors and establishments affiliated with the HMO may be contacted for their services. The policyholder may only receive the medical services that were authorized by the plan. In the event that the medical services came from a non-authorized provider or exceeded those indicated by the plan, the HMO will not pay for its share of the bills.

As an offshoot of public healthcare, managed care offers a subset that has fewer restrictions. These hybrid plans blend HMOs with some features offered by indemnity coverage. An example of this is the point-of-service plan (POS) in which costs are kept low by a network of health service providers that have contracts with the insurance company. However, the policyholder can consult with doctors and hospitals outside of this network by agreeing to pay a higher deductible or co-payments.