How Are The Costs Of A Health Insurance Plan Made Up?

Unless you are familiar with medical insurance then the costs of a medical insurance plan can seem to be a bit complicated and many people are surprised that, after they have spent what seems like a fortune, they find themselves landed with a bill the first time they submit a claim. So before you are landed with a large medical bill therefore, it is a good idea to take a minute to learn just what sort of costs you should expect to incur on your medical insurance policy.

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

Most health insurance policies will also include an annual deductible which is an amount of money that you will need to pay before the insurance company starts paying out on any claims. Thus, with an annual deductible of $1,000 you will have to pay the first $1,000 of your medical bills every year before the insurance company will begin paying out. You may be familiar with the principle of paying a deductible from your experience with motor insurance policies and, if so, will also 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 typically include multiple deductibles for the individual members covered by the plan.

Many plans will also include a co-payment which is a fixed sum of money that you will have to pay towards every medical bill. Just how much you will have to pay in co-payments will depend very much on the type of plan you have. For example, co-payments on HMO plans are often less than those on indemnity plans. Additionally, the co-payment will also vary between different forms of medical service and, if you are a member of an HMO plan, will usually rise if you seek treatment outside of the HMO network.

In those cases where no co-payment is required you will normally find that this is replaced by co-insurance which is very similar and is an amount of money, this time expressed as a percentage, that you will need to pay towards every medical bill. A common co-insurance ratio is 80/20 meaning that the insurance company will pay 80% of any medical bill while you pay 20%. As with co-payments, co-insurance will often increase if, as an HMO plan member, you seek treatment outside of the HMO's network. In this case you will also find that, when a claim exceeds what is considered by the insurance company to be 'reasonable and customary', you could be required to meet the additional cost.

By now you will realize that comparing health insurance plans is about a great deal more than simply comparing plan premiums. As a consequence, it is vitally important for you to read the small print of any quote very carefully and avoid the common temptation to simply choose the plan with the smallest monthly premium.

If you want to keep costs low and are a member of an HMO plan then you should try to stick within the HMO's network and, when you do feel that it is necessary to go outside of the HMO's network, then compare the actual cost of treatment to what the insurance company considers to be 'reasonable and customary' before undergoing treatment.

You can also keep your costs down on most plans by adjusting the deductible and by opting for higher or lower co-insurance. Precisely how this can be achieved is beyond the scope of this particular article but is a matter of balancing the different costs against the probability of having to make a claim against the plan.