This may seem like a silly question, but when you stop and think about it, there's more to it than meets the eye.
In order to understand health insurance, you need to know what insurance is in general. Insurance is all about risk and probabilities. With insurance, your insurer agrees to assume your risk of incurring serious financial loss due to an accident, illness, bad luck, or other specified means. In exchange for this service, the insurance company charges you monthly premiums to help offset the cost of protecting you against this potential financial loss. So when you buy car insurance, for example, your insurer agrees to pay the tens of thousands of dollars in auto repairs and medical bills incurred if you have a car accident. In exchange, you pay a monthly premium.
Health insurance works the same way. Every month, you pay a premium. In exchange for this premium, your insurer agrees to assume the financial risk if, for example, you require a kidney transplant or are diagnosed with cancer.
Of course, there's a little more to it than that. For example, some types of health insurance coverage, particularly individual health insurance policies, require you to go through a process called underwriting, where the insurer determines how likely it is that you will experience an expensive injury or illness. Based on this determination, the insurer decides whether to offer you coverage, and if so, what your premium will be.
Additionally, health insurers don't always cover 100% of your medical expenses right away. Sometimes, they require you to fulfill a deductible first. And often, they will ask you to take responsibility for a copay or coinsurance for each prescription or doctor's visit. However, most health insurance policies do exactly what they are supposed to do - protect policyholders from major financial loss, and even provide some assistance with smaller expenses.
