Health care costs continue to rise and many people don’t have the means to pay for their medical expenses. Those that start out with a healthy savings account and no health insurance, soon find their savings depleted and medical bills mounting.
Medical bills are one of the primary sources of debt for American families. When you don’t have family health insurance to cover you and your family’s medical expenses, your financial life can be ruined in no time.
Basic Health Insurance Terms
A premium is the amount you (the policy holder) pay each month for health insurance. It’s similar to auto and homeowners insurance you pay.
The deductible is the amount you have to pay out of pocket before your health insurance covers any expenses. If you have a $1,000 deductible, you will have to pay $1,000 worth of expenses yourself before your insurance pays for anything. Affordable health insurance often has a high deductible.
Health insurance providers often require you to make a copayment at the time of service. Your copayment is an addition to the amount the health insurance company pays for the service. If your copayment for a doctor’s visit is $25 and the price of the visit is $125. You pay $25 and your insurance pays the remaining $100. Copayments are also applied to prescriptions.
With coinsurance, your insurance provider pays a certain percentage of your health bill and you pay the other percentage. Also known as percentage participation, coinsurance rates are often stated a rate, like 80/20 or 90/10, or as a flat fee per doctor’s visit. If your coinsurance rate is 80/20, your insurance provider pays 80% of the service charge and you pay 20% of the service charge. Many health insurance providers have a coinsurance cap that will limit your out of pocket expenses.
Exclusions are services that are not covered by the insurance company. You’ll have to completely cover any medical services that your health insurance does not cover. Some examples are dental and eye coverage, cosmetic surgery, and pre-existing conditions.
A coverage limit is the maximum amount your health insurance will pay over a period of time. The coverage limit might only apply to each year, or it can apply to the lifetime of the insurance policy. You’ll have to completely cover any expenses that exceed the coverage limit.
Out-of-pocket maximums define the maximum amount of money you’ll pay out of pocket for medical expenses during a period of time. Once you reach your out-of-pocket maximum, the insurance provider completely covers the remaining expenses.
Types of Health Insurance
Managed Care Insurance Plans
Some individual health insurance providers offer what’s known as managed care health insurance plans. Under managed care, there is a network or panel of health care providers – doctors, hospitals, and clinics – that your insurance covers. Your health insurance will only cover services if they are provided by one of these health care providers.
There are three choices of managed care plans:
1. An HMO or Health Maintenance Organization has specific providers –doctors, hospitals, and clinics – that are available for employees to use. The insurance company has negotiated reduced fees with these providers and is able to provide insurance to policyholders at a lower cost. With most HMOs, members have to choose a main doctor known as a primary care physician. This is the doctor you see for most of your major medical insurance needs and to obtain referrals to other specialists as needed.
If you have an HMO, you’ll typically have a fixed monthly payment no matter how often you use medical services.
2. A PPO or Preferred Provider Organization is similar to an HMO, only the group of medical providers is sponsored by a certain group or insurance provider and only services that group. PPO members are not required to receive services from PPO providers, but pay a lower cost for health insurance when they do.
PPO members can pay for services at the time they are provided and are reimbursed by the insurance company. Or, the service provider bills the insurance company for the covered amount and member make any necessary co-payment.
3. A POS or Point of Service plan allows customers to choose a provider at the discounted rate, but must have a referral from that provider before seeing a specialist for more specific medical issues. You can see a health care provider outside the POS network, but often with a deductible and a higher co-payment.
Indemnity Insurance Plans
An indemnity health insurance plan is very much different from a managed care plan in that you are allowed to choose any doctor at any hospital. But, you’ll pay a higher price for the increased flexibility.
Indemnity plans often have a deductible that must be met before the health insurance provider covers any expenses. After the deductible has been met, the insurance provider will pay a certain percentage of medical expenses and you’ll be responsible for the remainder.
Preventative services, like routine checkups, might not be covered under an indemnity plan.
Health Savings Accounts
A Health Savings Account or HSA is a special savings account that individuals can use to pay for medical expenses (not medical debts). You choose, control, and contribute to your HSA.
As of 2009, you can contribute a maximum HSA contribution limit of $3,000 if you have an individual plan and $5,950 if you have a family plan. You can take a tax deduction for post-tax funds that are contributed to an HSA.
If you currently have a High Deductible Health Plan (HDHP) you qualify for an HSA. To qualify for an HSA in 2009, your HDHP deductibles must be a minimum of $1,150 for individuals and $2,300 for families.
You can establish an HSA at a bank, credit union, or through your insurance provider.
Choosing a Health Insurance Plan
When you’re choosing a family health insurance plan, you should pick the plan that will provide you with the most complete coverage for your family’s medical needs, but at the lowest out-of-pocket expense.
If you seldom visit the doctor – like once or twice a year or less – an HDHP along with a HSA is a good option. A high deductible insurance plan has a lower monthly premium. Put the money you save on your premium into an HSA and pull from the HSA to cover your medical expenses up to your deductible.
Many people already have doctors that they love. If that doctor isn’t in your insurance’s network, you’re not willing to switch physicians, and you can afford the extra costs, an indemnity plan might be a better option.
When your preferred doctor is in your insurance’s network, you’re not likely to need services from physicians outside the network, and you don’t mind getting referrals for specialists, an HMO is a good choice. You’ll have lower out-of-cost expenses.
As you shop around for a health care plan, consider the tax benefits. If you itemize your deductions, you can deduct medical expenses that exceed 7.5% of your adjusted gross income. Self-employed individuals that have a net profit can deduct 100% of their health insurance premiums and other medical expenses.
Some lifestyle choices may influence your health care costs. For example, some employers may require smokers to pay higher health insurance premiums than nonsmokers. The reason is because smokers tend to have more insurance claims than nonsmokers, driving up the cost of short term health insurance for everyone, according to a 2006 article by Fredericksburg.com.
It’s no secret that more than half the U.S. population today is either overweight or obese. What people might not realize is that being overweight incurs far more medical expenses. In The Economics of Obesity, authors Jay Bhattacharya of Stanford University and Neeraj Sood of Rand reveal that because of the chronic illnesses that the obese face – stroke, heart failure, diabetes, and hypertension – their medical costs end up being $10,000 more than the non-obese.
Shopping For a Free Health Insurance Quote Shopping around for a free health insurance quote is much easier when you use the internet.
Many state governments have websites with information about insurance companies that provide service in that state. To see if your state has a website like this do a search for your state’s name + health insurance, for example “Florida Health Insurance.” Look for a website that ends in .gov.
It pays to compare multiple health insurance quotes. By comparing health insurance quotes from multiple providers you’ll end up with the most competitive health insurance rates. Always go with high quality health insurers, as you’ll want them to be around and provide good service when needed.