Do You Know How the Costs Of Your Medical Insurance Policy Are Calculated?

Unless you are familiar with health insurance then the costs involved in a medical insurance plan may seem to be a little complicated and many people are surprised that, after they have shelled out what seems like a fortune, they find themselves landed with a bill the first time they submit a claim. Before you are hit with an enormous medical bill therefore, it would be a good idea to take a minute to learn just what goes to make up health insurance plan costs.

The first and most obvious cost is the monthly premium or, in some cases, the quarterly or annual premium. If you are enrolled in a union or employer's group insurance plan then you will usually be asked to pay only a percentage of the premium and this will usually be taken directly from your pay check.

The majority of medical insurance policies will also include an annual deductible which is a sum of money which you will have to pay before the insurance company begins to pay out on any claims. Thus, with a yearly deductible of say $1,000 you will need to pay the first $1,000 of your medical bills each year before your insurer will begin paying out. You might be familiar with the principle of paying a deductible from your experience with motor insurance and, if this is the case, will also know that the more the deductible on your plan the lower your premiums will be. If you have a family medical insurance plan then this will typically include deductibles for each family member covered by the plan.

Most medical insurance policies will also include a co-payment which is a fixed amount of money that you will need to pay towards every medical bill. Just how much you will have to pay in co-payments will depend very much on the type of plan which you hold. For instance, co-payments on HMO plans are normally less than those on indemnity plans. Additionally, the co-payment will also vary between different types of medical service and, if you are enrolled in an HMO plan, will normally be higher if you are treated outside of the HMO network.

In those cases where a co-payment is not required you will usually find that this is replaced by co-insurance which is similar and is a sum of money, this time expressed as a percentage, which you will again have to pay towards each medical bill. A common co-insurance ratio is 80/20 meaning that the insurance company will meet 80% of any medical bill while you pay 20%. As for co-payments, co-insurance will generally rise if, as an HMO plan member, you are treated outside of the HMO’s network. In this case you will also find that, when a claim exceeds what is considered by the insurance company to be 'reasonable and customary', you could be required to pay the additional cost.

By now you will realize that comparing medical insurance policies is about far more than simply comparing plan premiums. For this reason, it is critically important for you to read the small print of any health insurance quote most carefully and avoid the common temptation to merely pick the plan with the smallest monthly premium.

If you want to keep your costs down and are in an HMO plan then you should attempt to remain inside the HMO’s network and, if you do feel that it is necessary to go outside the HMO's network, then compare actual treatment costs to what the insurance company considers 'reasonable and customary' before you agree to treatment.

You can also keep your costs down on many plans by adjusting your deductible and by selecting higher or lower co-insurance. Precisely how this can be done is beyond the scope of this particular article but is a matter of balancing the different costs against the likelihood of needing to claim on your policy.

This might appear to be a little complicated but a sound understanding of the different costs which make up your total expenditure is very important when it comes to getting the best deal and finding a suitable private health insurance plan.