How Are the Costs Of A Health Insurance Plan Calculated?

The costs which make up a health insurance policy are more complicated than most people believe and a clear understanding them is vital if you are to avoid paying an arm and a leg for cover.

Unless you are familiar with health insurance then the costs involved in a health insurance plan might appear to be a little complicated and many people are surprised that, having paid what seems like an arm and a leg, they find themselves landed with a bill the first time they make a claim. So before you are landed with a large medical bill therefore, it might be a good idea to take a moment to understand just what type of costs you should expect to incur on your health insurance plan.

The first and most obvious cost is the monthly premium or, if you so choose, the quarterly premium or annual premium. If you are enrolled in an employer's or union group insurance plan then you will usually be asked to pay only a percentage of the premium and this will generally be taken directly from your pay check.

Most health insurance plans 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 a yearly deductible of say $1,000 you will need to meet the first $1,000 of your medical bills each year before your insurer will begin paying out. You may be familiar with the principle of paying a deductible from your experience with motor insurance and, if so, will know that the more the deductible on your plan the lower your premiums will be. If you have a family health insurance plan then this will often include multiple deductibles for the individual members covered by the plan.

The majority of health insurance plans will also include a co-payment which is a fixed sum of money that you will have to pay towards each medical bill. Just how much you will have to pay in co-payments will depend to a large extent on the type of plan which you hold. For example, co-payments on HMO plans are normally less than those on indemnity plans. In addition, the co-payment will also vary between different types of medical service and, if you have an HMO plan, will usually increase if you seek treatment outside of the HMO network.

In cases where a co-payment is not required you will often find that this is replaced by co-insurance which is similar and is an amount of money, in this case expressed as a percentage, that you will have to pay towards each medical bill. A typical co-insurance ratio is 80/20 indicating that your insurer will meet 80% of any medical bill while you pay 20%. As with co-payments, co-insurance will generally increase if, as an HMO plan holder, you seek treatment outside of the HMO's network. In this case you will also find that, whenever a claim exceeds what is considered by the insurance company to be 'reasonable and customary', you may be required to pay the additional cost.

By now you will see that comparing different health insurance plans is about far more than merely comparing premiums. Accordingly, it is critically important that you read the small print of any health insurance quote most carefully and that you avoid the common temptation to simply choose the plan which has the smallest monthly premium.

If you wish to keep costs low and are in an HMO plan then you should try to stay within the HMO's network and, where you do feel the need to go outside of the HMO's network, then compare the actual cost of treatment to what your insurer considers to be 'reasonable and customary' before you agree to treatment.

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

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