Just How Are The Costs Of Your Health Insurance Plan Made Up?

By Author: Donald Saunders
Total Articles: 84
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If you are not familiar with health insurance then the costs of a health insurance plan might seem to be a bit complicated and many people are surprised that, after they have shelled out what seems like an arm and a leg, they find themselves landed with a bill the first time they submit a claim. Before you are hit with an enormous medical bill therefore, it would be a good idea to take a moment to learn just what sort of costs you can expect to incur on your health insurance plan.

The first and most obvious cost is the monthly premium or, in some cases, the quarterly premium or annual premium. If you are enrolled in an employer's or union group plan then you will normally be asked to meet only a percentage of the premium and this will generally be deducted from your pay check.

The majority of health insurance policies will also include an annual deductible which is an amount of money that you will have to pay before your insurer begins to pay out on any claims. So, with an annual deductible of say $1,000 you will have to meet the first $1,000 of your medical bills each year before your insurer will begin paying ...
... out. You might be familiar with the principle of paying a deductible from your experience with car insurance policies and, if this is the case, will know that the higher the deductible on your plan the lower your premiums will be. In addition, if you have a family plan then this will often include multiple deductibles for the individual members covered by the plan.

Some policies will also include a co-payment which is a fixed amount of money that you will have to pay towards each medical bill. Exactly how much you will have to pay in co-payments will depend very much on the type of plan which you hold. For example, co-payments on HMO plans are normally lower than those on indemnity plans. In addition, the co-payment can also vary between different types of medical service and, if you are enrolled in an HMO plan, will normally rise if you seek treatment outside of the HMO network.

In cases where no co-payment is required you will generally find that this is replaced by co-insurance which is similar and is an amount of money, this time expressed as a percentage, that you will again need to pay towards each medical bill. A typical co-insurance ratio is 80/20 which means that your insurer will meet 80% of any medical bill while you pay 20%. As for co-payments, co-insurance will generally rise if, as an HMO plan holder, you seek treatment outside of the HMO's network. In this case you may also find that, where a claim exceeds what the insurance company considers to be 'reasonable and customary', you might be required to meet the additional cost.

By this time you will see that comparing different health insurance plans is about far more than just comparing premiums. For this reason, it is vitally important for you to read the small print of any quote very carefully and that you avoid the common temptation to merely select the plan which has the lowest monthly premium.

If you wish to keep your costs down and are a member of an HMO plan then you should attempt to stay within the HMO's network and, if you do feel that it is necessary to go outside of the HMO's network, then compare actual treatment costs to what your insurer considers 'reasonable and customary' before you agree to treatment.

You can also keep your costs down on many plans by raising or lowering the deductible and by selecting higher or lower co-insurance. Precisely how this can be done is beyond the scope of this short article but is a question of balancing the different costs against the probability of needing to claim on the plan.