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Hidden Costs in Health Insurance Plans


When it comes to buying medical health insurance most people start by looking at the monthly premiums being charged across a range of policies and use this as the basis on which to do their comparison shopping.

Indeed a lot of people will buy their plan solely on the basis of the monthly premium assuming that this is the only cost involved in the plan.

Unfortunately, the monthly premium is arguably one of the last things you should look at when shopping for the best buy and certainly does not represent the cost that you will actually pay - unless of course you never need to make a claim against your plan.

The cost for your health insurance plan will be a combination of several different elements and it is important to understand each of these before you start trying to compare different plans.

The monthly premium is of course one element of a health insurance plan but you should not simply dismiss a plan if this appears to be high because, as we will see shortly, this is one element of your policy that can often be adjusted. You should also be wary of monthly premiums that are very reasonable because many insurance companies will set their initial monthly premiums at a very low price to entice you to buy the plan. This low pricing will however often apply only to the first year of the plan and premiums will rise steeply in the second and subsequent years.

In addition to the monthly premium you will be required to meet other costs and the second of these is known as the deductible. This is a set sum of money that you will have to pay each year before your insurance company will start to meet the cost of claims. The deductible is applied to the plan annually and is not a 'one off' charge applied over the life of the plan. Accordingly, having met the deductible in any one year you will need to start all over again and meet it in the second and subsequent years.

In the majority of cases insurance companies will allow you a great deal of flexibility when it comes to setting your deductible and will permit a trade-off between the deductible and the monthly premium. In other words you can have a high deductible and low monthly premium or a low deductible and high monthly premium. While it is generally a good idea to keep your monthly premiums down by setting your deductible as high as you can reasonably afford, you will need to think carefully about the effects that claiming on your policy will have on your overall costs to see which combination is most likely to suit your particular situation.

After your deductible and monthly premium, the next two charges which you will have to meet are co-payments and co-insurance. At first sight these are basically the same things but each will affect your overall costs quite differently.

A co-payment is a set sum of money that you have to pay before your insurer will meet a specific bill. For example, you might have to pay $10 towards the bill for each visit to your doctor and to pay $5 towards the cost of every prescription. Co-insurance works in exactly the same manner but, instead of paying a fixed sum of money, you pay a percentage of every bill.

Both co-payments and co-insurance will vary considerably between plans and may not necessarily be applied to all of your medical bills. Indeed, in some instances you may find that the payment required for some bills is set at $0 or 0%. If your plan requires you to pay co-insurance then you need to assess the possible costs carefully as a series of large medical bills can result is your paying a considerably amount for co-insurance.

There are two other elements which you need to pay particular attention to and which are often either overlooked altogether or given insufficient consideration.

The first is the maximum amount of money that the insurer will pay out over the life of your plan. This provision is written into the plan in order to protect the insurer and is normally a seemingly high figure expressed in millions of dollars. However, with medical costs continuing to rise at an alarming rate, it is surprising just how quickly you can eat into this figure as your claims are added up over the years. If you hold a plan for 10, 15 or 20 years your accumulated medical bills could easily start to run into millions of dollars, especially in the case of major accident or serious or chronic illness.

To assess the right lifetime payout figure for your own situation is not always easy but, as a guide, a lifetime payout of anything less than $1 million is almost certainly not worth the paper it is written on and most people today would probably agree that a figure of $2 million would be an absolute minimum.

The second element is one of protection for yourself as the policyholder which sets a limit to the amount of money which the insurance company will require you to pay in any one year. This is normally referred to as the out-of-pocket maximum and, once this figure has been reached, the insurer will meet the full cost of your medical bills. It is important to note that the out-of-pocket maximum is applied annually on renewal of your plan and any 'unused' portion cannot normally be carried over from one year to the next.

It is also vitally important that you choose a policy with an out-of-pocket maximum which you can meet and should note that the number one reason for personal bankruptcy in the United States is an inability to meet medical bills.

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