Health Insurance Cost

Health insurance consumers who are in the process of buying individual health insurance coverage oftentimes have difficulty comparing health insurance policies on the basis of cost. Many consumers mistakenly base their purchase decisions solely on the monthly insurance premium costs associated with the plans they are considering. Indeed, most consumers do not take into account the full set of costs associated with health insurance coverage.

Because the premium cost is a predictable cash payment on a monthly basis, premium costs are easy for most consumers to understand. It is a real cost in that it is both quantifiable and predictable. However, the true cost of health insurance requires that you include both real costs and potential shared medical costs arising from the coverage limitations or deductibles under your health insurance plan. The potential costs are real because most people are likely to incur medical expenses during the course of a year.

This tutorial by HealthInsuranceFinders.com helps consumers more fully understand the true health insurance cost of a typical policy.

Health Insurance Cost Factors
Below is an overview of the various factors in determining the cost of health insurance under an individual or family health insurance plan. All of these factors, including several others not listed, contribute to your health insurance costs.

Premiums: Premium costs are the monthly base payments made to the insurance company for coverage under a health insurance plan. This is usually the easiest-to-understand contributor to health insurance costs for consumers to understand.

Riders: Consumers can add extra benefits that are excluded under the standard coverage through "riders". For instance a "maternity rider" can be added to most policies that exclude maternity benefits to cover costs associated with expected pregnancy. The costs of such riders are added to the monthly premium costs and ultimately factor into your overall cost of health insurance.

Co-Payments: A co-pay is a flat payment that is the responsibility of the patient associated with a medical event. For example, a plan may require that you pay a flat $20 for doctor's visits. The co-pay amount is usually specified clearly in a health insurance policy. Co-payments are paid directly to the treating physician or medical group.

Co-Insurance: Of the amount that is billed by a medical provider, the co-insurance percentage represents the sharing of costs between the insurance company and you. The amount of the coinsurance can be sizable for large medical bills. Most insurance policies have maximum annual limits on your coinsurance liabilities, but they must still be considered a potential health insurance cost factor.

Deductible: While not a direct health insurance cost, the deductible amount is a contributing factor in determining out-of-pocket health insurance costs. Any medical expenses incurred under the deductible amount are the full responsibility of the consumer and must be paid directly to the treating health care provider. None of the deductible expenses are reimbursed by the insurance company so they contribute to your overall cost of health insurance.

Out-of-Pocket Limit: Many health insurance plans have an upper limit on the out-of-pocket costs that are incurred by a consumer in a typical year. This limit serves as a protection to the consumer in case unexpected medical expenses are far beyond the norm. Out-of-pocket limits do not include your monthly premium expense, or co-payment amounts associated with physician visits or prescription drugs.

Lifetime Maximum: Insurance companies typically stipulate a lifetime maximum benefit over the term of a policy. This cap serves as a protection to the health insurance company. If this maximum amount is ever reached, then the consumer is responsible for all costs over and beyond and the insurance company is released from further liability. A good health insurance plan should have a lifetime maximum benefit of $2 million or more.

Example Calculation of Health Insurance Costs
The definitions above are easier to understand in the context of an example. Below is an illustration of health insurance cost calculations:

Consumer pays $200 in monthly premiums for a health insurance plan with the following attributes:

• $1,000 deductible
• $25 co-pay on prescription drugs
• $200 co-pay on hospitalizations
• 20% coinsurance rate

Now imagine this scenario:

• 6 months after purchasing a new health plan, the consumer hurts herself and requires hospitalization
• Hospitalization costs $7,500 in total
• In addition, the consumer requires $500 in prescription drug costs (assume 3 different prescriptions)

The out-of-pocket costs can be broken down into the following:

• Premiums: For 6 months, the consumer paid $200 in premiums for a total of $1,200.
• Hospitalization: For the co-pay, the consumer pays $200 flat. However, $7,300 remains on the medical bill. Because the consumer's coinsurance rate is 20%, the consumer will be responsible for $1,460 of the remaining balance. Thus, the total out-of-pocket cost of the hospitalization is $1,660
• Prescription Drugs: For the 3 prescriptions, the total co-pay will be $75 ($25 times 3 prescriptions).

Thus in this example, the total health insurance cost was $2,935.

Understand Costs with a Health Insurance Agent
A knowledgeable health insurance agent should walk you through multiple cost scenarios of the plans for which you are quoted. While you should demand that an agent is knowledgeable enough to help you understand these factors, it is still important for consumers to engage in a conversation with a health insurance agent who has a basic knowledge of health insurance costs. When all is said and done, you should feel confident that you fully understand your total cost of health insurance with the health insurance plan you choose.

Search for health insurance plans and the costs associated with them using the search box above. Plans are specific to the state where you live, so you must choose a state to begin.

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