	Introduction

Congress has seen a renewed interest in questions related to the market for private health insurance since the passage of the Patient Protection and Affordable Care Act (ACA; P.L. 111-148 , as amended). This report provides an overview of private-sector (as opposed to government-provided) health insurance. It serves as an introduction to health insurance from the point of view of consumers under the age of 65 who purchase a health insurance plan. No background in health insurance is assumed, and all terms are defined. What Is Health Insurance? This section of the report covers the differences between a consumer's purchase of health care and his or her purchase of other goods and services. The Challenges of Purchasing Health Care

A consumer may find the purchase of health care different from some other purchases. Health care can be expensive, especially for major illnesses or injuries. In addition, the consumer may not know in advance when (if at all) over the course of a year he or she will purchase the health services, what services he or she will need, and how much the services will cost. Each of these characteristics of health care decreases the consumer's ability to plan financially and increases the exposure to financial risk. Health Insurance Can Help Consumers Manage Risk

The purchase of health insurance reduces the risks and unpredictability inherent in a consumer's cost of health care. In return, if the consumer receives health care over the course of the year, the health insurer may pay some (or all) of the costs, depending on the details of the plan. When employees obtain health insurance through their employer, the cost of the health insurance plan often is shared between the employee and the employer. Consumers also may be eligible for other federal and state health insurance programs or can choose to purchase private insurance that is not from a group. Insurance exchanges serve as marketplaces for health insurance plans in that they facilitate transactions between the buyers of insurance (consumers) and sellers of insurance (insurers). The plans are an ESI plan obtained as a fringe benefit from the consumer's employer, an individual insurance plan purchased directly by a consumer from an insurer, and an individual insurance plan purchased by a consumer through an exchange. Two of these specialized plan types are consumer-directed health care (CDHC) and value-based insurance design (VBID). Both plan types have the potential to lower aggregate health care spending by reducing individual health spending.
Congress has seen a renewed interest in the market for private health insurance since the passage of the Patient Protection and Affordable Care Act (ACA; P.L. 111-148, as amended). This report provides an overview of private-sector (as opposed to government-provided) health insurance. It serves as an introduction to health insurance from the point of view of many consumers under the age of 65. No background in health insurance is assumed, and all terms are defined in the body of the report.
A consumer may find the purchase of health care inherently different from some other purchases. Health care can be expensive, and many relevant details concerning future health care may not be known when the consumer is choosing an insurance plan, including when over the course of a year (if at all) health care will be purchased, which services will be needed, and the costs of those services. These characteristics of purchasing health care decrease the consumer's ability to plan financially and increase the consumer's exposure to financial risk. The purchase of health insurance reduces the risks and unpredictability inherent in paying for health services.
An employed consumer may obtain health insurance from his or her employer if health insurance is offered by the employer (known as employer-sponsored insurance, or ESI) as a fringe benefit. All consumers may purchase health insurance directly (perhaps through an insurance agent or broker) from private insurance firms. In addition, all consumers may obtain health insurance through insurance exchanges, or marketplaces. Exchanges facilitate transactions between buyers and sellers of insurance but are not insurers.
Health insurance plans can differ across many dimensions, including coverage, costs, flexibility in choosing providers, special features, and generosity. Two specific health insurance plan types that may be of interest to Congress are consumer-directed health care (CDHC) and value-based insurance design (VBID). Both these plan types have the potential to lower aggregate health care (however measured) by providing incentives for consumers to seek less care, or less expensive care.
Which particular health insurance plan a consumer chooses depends on a number of factors, including the expected health of those covered by the plan, the price of the plan and of the medical services it provides, the consumer's income, and the prices of the other goods and services the consumer wishes to purchase. In addition, because some health insurance plans are tied to employment, the consumer's status as an employee also influences (and is influenced by) his or her choice of health insurance.