Tuesday, August 14, 2007

Low Cost Health Insurance - Where To Start

Finding good low cost health insurance does not simply mean looking for the lowest premium but, as this article will show, means fully understanding all of the costs that will be involved in your policy.

Assuming that you have already decided upon the type of health insurance that will best suit your needs (indemnity, managed care HMO or hybrid managed care PPO or PPS) the next step in finding a good low cost health insurance policy is to make sure that you fully understand just how the cost of health insurance is made up. Most people will start by looking at the monthly premium charged for a policy but, unfortunately, this is just the initial cost and not the final cost of your policy.

The total cost for any health insurance policy is made of several different elements and you need to understand just what each element is before you start looking at different low cost health insurance quotes and working out exactly what you are likely to end up paying.

The first and most obvious charge is the monthly premium and you should not be put off if this initially seems to be very high. This is one element of your policy that can be adjusted as we will see in a moment. One thing to be aware of though is that some companies may offer a low premium in order to entice you into buying the policy. This "special offer" will only apply however to your first year with the plan and your premium will then increase markedly for the second and subsequent years.

The second charge is what is known as the deductible. This will be a fixed sum of money that you will need to pay out of your own pocket each year before your insurance company will meet the cost of any claim. It is important to remember that this sum applies to each year of the policy's life and that having met the deductible this year you will need to start all over and meet it again next year and in subsequent years.

In most cases insurance companies will allow considerable flexibility in the deductible attached to a policy and a low deductible will mean paying higher monthly premiums and a high deductible will mean paying lower monthly premiums. As a general rule it is a good idea to set your deductible as high as you can reasonably afford to keep your premiums low but you will need to consider your likely requirement to claim on the policy as there are circumstances in which setting the deductible as low as possible and paying higher premiums may be an advantage.

The next two charges which will be applied to your policy are co-payments and co-insurance. These are essentially the same things although each will affect the cost that you end up paying quite differently.

A co-payment is a fixed sum of money that you will be required to pay before the insurance company will meet any bill. For example, you may be required to pay say $10 towards the cost of each visit to the doctor and $5 towards the cost of each prescription.

A co-insurance works in exactly the same way except that instead of paying a fixed amount of money you pay a percentage of each bill.

Co-payments and co-insurance will vary from one policy to the next and may be applied to only certain bills. In some cases the payment required may also be set as low as $0 or 0%. The important thing to watch out for here is that co-insurance in particular can quickly build into a large sum of money and so needs to be carefully considered when assessing the likely cost of a policy.

All health insurance policies will provide an overall level of protection for both the insurance company and the policyholder and this is one element in assessing the cost of a policy which is often overlooked or to which far too little attention is paid.

The insurance company will protect itself by setting a ceiling on the maximum amount of money that it will pay out over the life of a policy and this is known as the lifetime payout provision. This is usually stated in terms of millions of dollars and when you are reasonably young and healthy can seem like a fortune. However, when a catastrophic event occurs or major illness strikes it can quickly become a significant issue.

You will need to use your own judgment here but, as a rule a policy with a lifetime payout of less than $1,000,000 is probably not worth the paper it is written on. Indeed, many people today would argue that a figure in the region of $2,000,000 should be your absolute minimum.

The insurance company will also provide protection for you as the policyholder by setting a limit on the maximum amount of money that you will be required to pay in any one year. This is known as the out-of-pocket maximum and, once it has been reached, the insurance company will meet 100% of your healthcare bills.

This out-of-pocket maximum is extremely important and you should never accept a policy with an out-of-pocket maximum which is greater than you can afford to pay. It is a sad fact that all too many people fail to pay sufficient attention to this and, as a result, there are more bankruptcies in the United States today caused by difficulties in meeting medical bills than for any other reason.

By Donald Saunders Published: 11/27/2006

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