Understanding Health Insurance Costs

A health insurance policy has two important segments that a consumer needs to consider before the final decision to purchase is made:

1.    Level of coverage offered by the plan
2.    Cost involved to be borne by the consumer

Among these two, if the focus is simply on buying a cheap health insurance plan, consumer would ignore the first one. However, if the consumer is smart enough, the focus would be equally divided among both of them so as to get maximum coverage within the lowest budget.

Now, if we talk about budget, let’s try to understand what types of costs are involved in a health insurance plan.

The cost of a health plan can be again categorized:

1.    Monthly premium
2.    Deductibles
3.    Copays
4.    Coinsurance

Let’s discuss all these four in details:

Monthly premium: monthly premium is the main cost that a consumer has to pay for a year. As the policy is renewed, this premium would need to be paid again on monthly basis. Premiums may vary based on age, gender, habits (smoking, drinking, health status, etc. Moreover, with every renewal, the premiums may change on the increasing side. Sometimes companies also increase premium with a notice to the consumers.

Deductibles: deductible is the amount of money needs to be paid by the consumer before the insurer actually starts paying for any particular coverage. Suppose a consumer needs a medical care which would cost $4000. If the deductible is $2000, the consumer will need to pay the initial $2000 and the rest of the amount will be paid by the insurer. It is advisable to have higher deductibles if the consumers are enjoying good health status, as it helps in lowering down the premium costs.

Copays: copayment, as the name suggest, is again paid by the consumer for a particular type of medical care just to make sure that the consumer does not spend on health care that is not necessary. It could be a small amount but it helps in keeping a check on the consumer.

Coinsurance: coinsurance is expressed in % of the total cost incurred for a particular type of medical care to be paid by the consumer after the deductibles have been paid. Suppose a consumer has opted for coinsurance for doctor’s visit. If the coinsurance agreed is 20% and supposing that doctor’s visit would cost $100, the consumer will have to pay $20 each time. This will be paid after the deductible has been paid.