Health Insurance - What You Need to Know

Paying off debt from medical emergencies is the #1 cause of filing for bankruptcy in America. That's why now, more than ever, it's essential to invest in health insurance.

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Why You Require Health Insurance

Health insurance is essential, and it help millions of Americans to afford the cost of healthcare. It is highly recommended to have some form of health insurance, unless you simply cannot afford it, are a low-income senior (over 65 years old) or are very wealthy. It goes without saying that people who are rich can afford to pay for their healthcare; but having additional health insurance is still highly recommended. Keep in mind that individuals over 65 and those who are extremely poor receive assistance in the form of Medicare and Medicaid, respectively.

Everyone should either obtain a health insurance plan or risk their financial security. A health plan is just like the insurance policies you take to cover your home, car or business; it protects your savings from being depleted by the devastating costs of chronic disease, a major accident or other medical emergencies.

However, health insurance is arguably the most important type of coverage since, unlike other devastating events, a medical emergency cannot wait.

What You Pay for a Health Insurance Plan

Health insurance companies give you lots of choices. Still, before you settle on a health insurance plan, it is essential that you understand the costs involved, such as premiums, deductibles, copayment and coinsurance:

  • Premiums: Similar to homeowner’s insurance or auto cover, you are required to pay monthly premiums regardless of whether you make a claim. The premiums provide the cash flow that insurers need in order to carry out their daily company operations and to pay out valid claims.
  • Deductibles: Deductibles are the funds you pay before the insurer contributes their money and these can range from $500 to $10,000 annually and are payable at the beginning of each year.
  • Copayment: A copayment is required when you visit a healthcare provider and use your insurance to cover the cost of the visit, which covers only a percentage of the total cost. Some plans may not require you to co-pay.
  • Coinsurance: This is also calculated as a percentage of the cost of services paid for by the insurance cover. A typical coinsurance may be 20 percent of the bill for a hospital stay, or a visit to the doctor.

Why do health insurers need to charge coinsurance, deductibles and copayments? The main reason for this is that they want to avoid having people visiting the doctor for frivolous reasons. As profit-making entities, their worry is that if healthcare is made completely free, they would make losses. Still, the Affordable Care Act places annual limits on these charges. Once these limits are reached, the insurance company has to pay 100 percent of the cost.

How Does Health Insurance Work?

To understand how health insurance works, we will use an example. Say you have had a serious accident, have been admitted to hospital and your bills add up to $50,000. Having to pay this amount out of pocket would be difficult for most people to manage without help. However, your insurance cover can make a big difference in how much you actually end up paying.

In this example, your costs would be:

  • Deductible: $5,000 (annual payment)
  • Co-insurance: 20%
  • Total annual out-of-pocket: $6,000

As we explained in the previous section, you would pay the $5,000 deductible each year before your health plan pays out. In addition, you will be responsible for 20 percent of your medical bills to a maximum of $6,000 out of pocket. In essence, you will only pay $2 for each $10 charged by your healthcare provider until the maximum is attained. Thereafter, the health insurer pays the full cost for any further healthcare services that you receive for the rest of the year.

Therefore, the total you would pay in this case would be:

Total medical bill: $50,000

The amount you pay: $6,000

The amount your health plan pays: $44,000

How to Choose the Best Health Insurance Plan

All the health insurance choices available can make selecting the best health insurance plan fairly complicated. You will need to understand your individual needs before you take your pick.

For instance, you may opt to select a plan with a higher monthly premium but lower co-insurance and deductible. Such a health plan makes sense if you suffer from a chronic condition, such as diabetes, that requires frequent visits to the doctor and regular medication.

However, if you are usually healthy, the best plan for you might be one that features low monthly premiums but higher deductibles. You would be willing to pay a higher percentage of the cost because you believe that the chance of actually requiring medical attention is relatively small. Take the time to fully understand your medical requirements before selecting a health insurance plan.