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Health insurance is expensive. In the United States, rising health insurance costs have even surpassed the overall inflation rate. This is because the health insurance providers are businesses that have to stay afloat. They have to cover the costs of selling such policies and maintain adequate funds to offer medical claims’ payouts.
The health insurers use several complex formulas to determine the total cost of the plans they offer. The formulas cover all the expenses they might incur. The most common charges include premiums, deductibles, coinsurance, and copays. But how do these factors influence how much you will be charged? They impact healthcare costs in the following basic ways:
Health insurance premiums are the monthly charges imposed by insurers for their policies. They are the primary source of revenue for any health insurance provider. The health insurers have to gain more money from insurance premiums than they pay out in benefits. This allows them to maintain a profitable business.
You have to pay your monthly health insurance premiums, even if you do not have any healthcare needs. Otherwise, you could get slapped with penalties or even lose your coverage. Premiums represent the largest percentage of the total health care costs for numerous American families.
If you are enrolled in an Employer-Sponsored Insurance (ESI) plan, you will pay cheaper premiums. This is because your employer pays a substantial amount. The employer payments are exempted from income taxes at both the federal and state levels. Your employee portion of the premiums is deducted from your paycheck pre-tax.
If you are a Medicare member, a portion of your social security checks covers the monthly premiums. However, if you are self-insured, you will have to pay the premiums directly. Insurers check several key aspects to determine your monthly premium. The most common factors are:
Age. You might have to pay higher premiums at an advanced age. This is because you are more prone to a wide variety of diseases at an older age. The premium for an older person might be three times higher than that of a younger one.
Location. Your residence influences your insurance premium amounts. Local and state rules, competition, and the cost of living vary from one area to the other.
Tobacco use. You might have to pay up to 50% higher in monthly premiums if you use tobacco.
Individual vs. family coverage. When you purchase a plan that includes dependents, you might have to pay higher premiums.
Plan categories. Bronze, Silver, Gold, Platinum, and Catastrophic covers are priced differently.
It is illegal for insurance providers to charge men and women differently for the same policies. They also should not consider your current health condition or medical history. All policies also need to include coverage for pre-existing health conditions from the first day of coverage.
You have to pay a deductible before your coverage begins. The deductibles vary from one plan to the other. However, on numerous occasions, the insurers stipulate them as yearly amounts. The deductibles renew each year.
Health insurance plans with high deductibles normally attract lower premiums. On the other hand, those with lower deductibles attract higher premiums. Some plans require you to pay separate deductibles for specified services. Some other plans, such as a routine checkup, exclude several services from requiring deductible payments.
All plans have several exemptions from the annual deductible amount. The Obamacare program or the Affordable Care Act lists such exemptions. However, you still have to pay for some health care services out of your pocket. This includes:
Stays at the hospital
MRIs and CAT scans
Doctor costs exceeding the copay amounts
The following are commonly not included in the deductible amounts;
Costs not covered by your policy
Copays are the fixed charges you pay, when insured, to see a medical specialist, or visit an emergency room. You normally have to pay copays for any medical service, including purchasing a prescription drug. The copays vary widely depending on the policy you have signed up for.
Traditionally, health insurance plans allowed policyholders to select their preferred specialists and health care centers freely. However, as costs rose, insurers started to seek means of cutting down the expenses. They engaged numerous stakeholders in the health industry to seek better terms. The copays ensure savings on the part of the policyholder.
The copay system works to save you money if you only see the approved healthcare providers. You, nonetheless, are free to choose to see healthcare providers outside of the approved network. This will attract higher copays.
Copays are also complicated in that you have to pay them each time you visit a medical specialist. This also means that you pay each healthcare provider you visit individually. This includes each drug test you take, prescription drug purchase, therapy, and other services.
It is important to understand how your policy works. Some plans consider copays as part of the deductibles, and others do not. In other plans, you have to pay your deductible for your copay to take effect.
Coinsurance is yet another manner in which the healthcare costs are split between the insurer and policyholder. The plans that have coinsurance normally have a kick in after you have met the annual deductible. Afterward, the insurance provider pays a portion of all the costs, while you cater for the rest.
The coinsurance rates vary with the type of medical services you sought. The rates are also different for medical services offered within and outside the approved networks.
Coinsurance rates represent a portion of the total cost of medical services that you have to pay for. Copays, on the other hand, are fixed amounts payable each time you seek medical services. To better understand how the two types of payments vary, consider the following cases:
Paid when you see a doctor or fill a prescription
Preset fee for the prescription service
May or may not count in your annual deductible amount
An amount you have to pay for medical care or drugs purchase after you fulfilled your deductible
Normally a percentage of the total prescription service cost
Payable after you fulfill your deductible
You pay directly to the medical services provider
Traditionally, you had the freedom to visit any healthcare provider under your health insurance cover. However, as health services cost spiked, insurers sought ways to get cheaper services. They, for instance, collaborated with certain healthcare providers. They offered to bring in more clients to the healthcare providers for more affordable services. In turn, their policies also got cheaper.
Modern healthcare insurance policies are cheaper if you see medical providers included in your policy network. The HMOs and PPOs are similar in numerous ways, but they have some differing characteristics. Their distinct aspects are:
HMOs, offer policyholders access to specified hospitals and medical specialists. The providers have to agree to charge lowly for the health services they provide to the registered plan members. They also have to abide by the rules set forth by the plan.
In most instances, you have to accept only to seek medical services from the specified list of providers. Otherwise, you might be denied health coverage by the said insurer. Most HMOs also require you to select a primary healthcare specialist. Then, the primary care physician will have to approve any visit you make to a medical specialist.
Exchange for the limited options of healthcare providers, you get cheaper insurance fees. Most HMOs also don’t impose a deductible, and when copays are included, they are minimal.
PPOs mainly work like HMOs except for the fact that they have fewer restrictions on seeking external healthcare. You can seek medical services without requesting permission from your primary healthcare physician. This means that you have the option of seeing providers outside of your coverage network.
Fewer restrictions, however, come at an added cost. You have to pay annual deductibles and copays. These policies nonetheless have lower fees for providers within your network than the external ones.
Numerous insurance policies traditionally imposed lifetime limits on the amounts they could payout. However, when Obamacare came into effect in 2014, those limits were prohibited. This means that there are zero limits today on the amount your insurer should pay for your medical costs. The law is effective as long as you have fully met your coinsurance costs, copays, and deductibles.
The law also made it illegal for insurers to cancel your health policy for medical reasons. This includes when you have pre-existing conditions such as diabetes.
It is unwise and sometimes even illegal to go without health insurance. The Federal Patient Protection and Affordable Care Act (ADA) mandates everyone to purchase insurance. You have to bear the costs of premiums, deductibles, copays, and coinsurance. The out-of-the-pocket costs are payable when billed.
Knowing the insurance service providers’ formulas above can allow you to spot and negotiate for better plans. This, in the long run, can set the pace for your access to quality healthcare and a debt-free lifestyle.