What Is The Definition Of Medical Insurance?

As health-care costs continue to rise, medical insurance, more commonly known as health insurance, becomes more important than ever. However, according to the National Association of Health Underwriters, about 45 million people in the United States were uninsured in 2009. While cost and availability is often a factor, some people do not obtain health insurance because they do not understand its importance.

Definition

Medical insurance is an agreement between an insurance company and a policyholder or employer in which the insurance company agrees to pay for subscriber's medical expenses, according to the terms of the agreement. A medical insurance agreement is governed by a written policy, which details the conditions, exclusions, limitations and other factors that affect coverage, according to "Foundations of Risk Management, Insurance and Professionalism," issued by the Chartered Property Casualty Underwriters Society, or CPCU. In return for the insurance company's agreement to pay for medical expenses, the subscriber agrees to pay periodic payments, called premiums.

Purpose

The purpose of medical insurance is to protect consumers against large health-care expenses, notes the CPCU. Without medical insurance, hospitalizations, surgeries and even emergency room visits can be financially devastating. Medical insurance allows consumers to maintain financial stability by allowing them to avoid having to pay for costly medical attention.

Types

Individual medical insurance and group medical insurance are the two types most commonly available to consumers in the United States, according to the National Association of Health Underwriters. Group health insurance is available through employers, and is typically coordinated through an employer's human resources department. Individual medical insurance is a popular choice for people who do not have access to group medical insurance, such as unemployed and self-employed people.

Regulation

Medical insurance is regulated by individual states, according to the CPCU. Each state has an insurance department that oversees the operations of insurance companies to ensure that policyholders are treated fairly. State insurance departments also field complaints from consumers and take control of insurance companies that are in danger of insolvency, or the inability to pay policyholder claims.

Alternatives

As of July 2010, medical insurance is not compulsory in the United States. Consumers may opt for self insurance, or paying for their own medical costs in lieu of maintaining medical insurance.

State health insurance risk pools are alternatives for consumers who cannot obtain group or individual medical insurance, according to the National Association of State Comprehensive Health Insurance Plans. Currently, 35 states have risk pools that provide limited medical coverage for qualified applicants. In some states, such as Florida, risk pools are currently closed to new enrollees.