By Mark A. Kelley, MD |06/10/16
Understanding Private Health Insurance – Part I
By law, everyone must have health insurance. If you qualify, you can use the government plans: Medicare, Medicaid, or Veterans Affairs insurance. If not, you must be covered by a private insurance plan. Read more about health insurance plans at Consumer Reports.
In these next two blogs, I will explain the key points and offer some tips about private health insurance.
Private health insurance is not free and has many different features:
The Monthly Premium:
Health insurance is a contract between you and the insurance company. The cost is billed monthly and you must pay it or lose your coverage. Like all insurance, the more coverage you buy, the higher the monthly bill (premium).
If your employer offers health insurance, you may pay only some of the premium cost. If you do not have employer insurance, you must buy it yourself and pay the full monthly premium. If you go through state or federal health exchanges, you may qualify for a discount if you have a low income. You can find the exchange in your state by going to Healthcare.gov.
Health Insurance Resembles Auto Insurance (Sort of)
The health insurance industry has redesigned its plans to include “deductibles”
This arrangement is familiar to all car owners. The deductible is what you pay out of pocket before the insurance kicks in. For example, if your car is damaged, a deductible of $500 means that you pay the first $500 of the repair bill before insurance pays anything.
To lower your premium, you can buy a higher deductible plan. That means you will have to pay more of any repair bill.
For example, if you choose a $1000 “high deductible” plan, you will pay less for insurance premiums compared to a “low deductible plan” of $500. However, in the event of an accident, you would pay the first $1000 of any collision repairs.
Many health insurance plans have a deductible, which is like a big bucket that fills up with medical bills. You pay every bill yourself until that bucket is filled to the deductible limit. If your deductible is $1000, you must spend that amount on medical care before the insurance begins to pay bills. The deductible applies to most health services and medications that you use during the year.
High or Low Deductible – Your Choice
A very healthy person may figure that the risk of any illness is low. Therefore, that individual might choose a plan with a low monthly premium and a high deductible (like $3000). Of course, an unexpected illness or accident could run up a bill of $3000 but the insurance would cover anything else for the rest for that year.
Those with existing medical conditions may already use medical services frequently. In that case, they might choose to pay a higher premium with a low deductible (like $1000) so that out of pocket costs are limited to $1000.
Obviously, the choice is up to you. The important factors to consider are:
–What is the annual cost of your insurance premiums?
–What is the likely cost of your medical bills next year? (Think carefully—are you planning elective surgery? do have an ongoing serious medical condition or recovering from one?)
–How much of that estimated cost will fall into your deductible? (If you don’t know, assume most of it will)
The major decision is whether you want a lower monthly premium and are willing to accept more risk for medical bills (a high deductible). If you anticipate many medical bills, the insurance company will cover more of the cost, provided you pay a higher premium.
The bottom line is to match your health insurance to your needs.
Only you can make that call.
Next Week – Part II: Understanding (and Using) Private Health Insurance – Details Matter