What are health insurance premiums?
“To sum it up…”
- Health care is expensive, so that’s why people have health insurance to pay for unexpected health issues that would cause extreme financial hardship
- Premiums are paid out to cover the costs of claims of the entire group and build up a reserve to handle claims
- Some of your premiums go to other costs and pay insurance agents for their work in the field
- Learn the types of health insurance coverage and make your decision based on your financial and health conditions
Health insurance is one of the most basic financial elements that you need to have in place. It is to protect you from having to pay huge health and medical costs in the event of a health problem. Even seemingly healthy people may have an accident or a mishap that will cause them to need medical care without warning.
Health insurance premiums are the payment amount that you make to your health insurance company monthly for your medical coverage. Insurance companies use this premium to put in their reserve.
The reserve fund is the money that insurance companies are required to have by law that ensures that they will be able to pay their claims promptly. If they allow their reserve to slip below a certain amount, they will lose their right to do business as an insurance company. The reserve fund is sometimes referred to as “the claims reserve.”
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What else do premiums go to pay?
Health insurance premiums also go to paying insurance agents. Agents must make a living for what they do. It is illegal to allow insurance agents to practice without getting paid. So a portion of your premium goes to pay insurance agents who sell the policies directly to customers. Without them, there could be no policy creation.
Why does health care cost so much?
Many people wonder why their health insurance premiums are so expensive and why they keep going up over time. That’s a good question. The recent extreme rate hikes associated with Obamacare and the Affordable Care Act has many people scrambling to find a replacement coverage.
With a new President-Elect coming into office in a few days, you are likely going to see many options that have not been available before. The new President has vowed to replace the Affordable Care Act and Obamacare with something much more reasonable in price and which will not be inflated near the end of the term as Obamacare was.
Despite this, health care is and always will be expensive. There are some specific reasons for this.
– Doctors’ Fees for Specialized Care
Doctors are considered specialists of the highest regard when it comes to health care. Surgeons and specialists are even more highly specialized. So much of what you pay for is the specialized care and expertise that goes into the treatment and consultation that doctors can offer. T
hey also have to go to school for a very long time (usually eight years or more) to achieve their status as an M.D. So you are paying for their time and money in learning their specialty as well.
Hospital stays – Hospital care is very expensive as well. An average day in the hospital can cost up to $300 per day. So much of the expense that is included in your health insurance premium helps pay for this.
Special treatments and surgeries – When your medical condition requires more specialized treatment than an ordinary doctor can give through medications or other means, you may end up with a much larger bill than you counted on. This is where a large portion of your premiums go.
Medicine and prescriptions – Medicine and prescriptions along cost exorbitant amounts of money for people that they could not pay on their own. For those over the age of 64 (65 and up), there is Medicare. It covers 80 percent of all medical expenses in a given year. You are required to meet the deductible first.
What are deductibles?
Deductibles are the amounts that you must pay into your health insurance policy before you can tap into the Medicare (or other health care plan’s) help to pay your expenses.
Forbes Magazine has an article that discusses the question of whether you should go for a high or low deductible plan with your health insurance.
The author of the article states that the key to making this decision is in having a complete understanding of both the high and low deductible type of insurance before you make a decision.
Low-deductible health insurance allows you only to have to pay a little to meet your deductible (around $1500 or $2000). This means that, once you have used this amount, your insurance will pay the rest. This is ideal for someone who has ongoing health issues or who goes to the doctor frequently. It may also be best for someone of advanced age if they do not meet the criteria for Medicare.
High-deductible health insurance allows you to get help from your insurance but only once you have paid in a relatively large amount. Examples of a High Deductible Health Plan would include those that have a deductible of $3000–10,000 or more.
As you can imagine, this plan requires that you pay a huge amount yourself before your insurance kicks in at all. This could be an extreme hardship for some people if they were to be struck with a sudden illness or accident.
This type of plan is only recommended for people who do not have health issues and rarely go to the doctor. In addition to these factors, they should also be someone who has a relatively large savings account so that they could tap into this if the need were there for major health treatments or surgeries.
The Expense of Health Care
The reality is that health insurance is quite expensive because health care is expensive. Major medical types of insurance are the most expensive, along with catastrophic illness and long-term care coverage.
You never know what life will lead you to regard your health or how long you will go without any treatable health issues. It is important to shop for coverage while you’re healthy, just as it is important to buy life insurance long before you are likely to die.
It seems backward in many regards when people think about insurance. This may be why so many are reluctant to purchase health (or life insurance) before it is too late. We tend to think that if we are okay now, it will always be that way. But we could become sick or injured without much warning and find ourselves in need of health care with no way to pay for it.
That is why it is so important that we plan ahead when it comes to planning our health coverage.
Categories of Health Coverage
There are four major types or categories of health insurance coverage. We will take a closer look at all of them in this section and then you will have a better idea of which one may suit your needs.
If you are not age 65 or older and covered by Medicare, you will want to be aware of the following types of insurance.
To be more specific, they are actual “medical delivery models.” They each operate in a unique way that is different from the others. Each one offers health coverage. But they have varying degrees of control over who you can have as your doctor, as well as how your health care is carried out.
Types of Health Insurance
– 1. HMOs
HMOs, or health maintenance organizations, were set up to lower the cost of insurance for people who do not have major health conditions or need ongoing medical care. This is because the HMO system is set up on a co-pay basis and only pays a $20 co-pay on most doctor’s visits or medicine that is prescribed by a doctor.
Additionally, it requires that you have a primary care physician which can be either “in-network” or “out-of-network.” But, if you choose to go out of network, the cost is higher.
– 2. PPOs
PPOs or “preferred provider organization” systems, offer an entire network of health care physicians who provide care to the members of their network. Like an HMO, you are allowed to go outside of the exclusive network to seek medical care. But there will be additional costs if you do.
– 3. EPOs
EPOs, or “exclusive provider organizations”, allow you to use the doctors and hospitals within the EPO network but you cannot go outside the network at all. If you do, you will have to pay the entire cost of your health care.
– 4. POS
POS stands for “point of service.” Under this delivery model, you will have the choice to choose doctors, hospitals, and others that are not in your specified network. However, you have to pay for using out-of-network doctors.
High Deductible Plans
When we talk about the different types of delivery plans, we should also mention another word about high deductible plans. Under these plans, you have control over your choice of medical treatment and doctors. You can go to whatever physicians, specialists, or other health care providers that you feel the most comfortable with.
However, the price you pay for this freedom is that you must pay in a huge amount of money before your insurance will pay for any of it. So, for a relatively extended period of time, you would feel as though you had no insurance at all.
Summary of Different Plan Types
As we summarize the various models of health care delivery and different insurance types, we start to see that it is a trade-off between the freedom to choose your care, doctors, and medicine, and the amount you have to spend for that freedom.
For example, the HMOs are all cheaper, but you are required to see a particular group of doctors or your price increases. The PPOs are similar, though you have no “primary care physician” with a PPO system. If you go out of network with a PPO, the price increases.
EPOs are even more restrictive because they will not pay for any care that you receive outside of your network. This leaves you with having to pay the entire amount of your coverage is you want the freedom of total control over your choice of treatments and doctors.
So as you consider which model you prefer, think about your current health conditions and the amount of value you place on your choice of medical care. To some people, it is crucial to get to choose their doctor. For others who have few health issues, it may not be as important.
How to Choose the Best Plan
When it comes to choosing your health insurance plan and the plan of your family, you can’t be too careful. Start by doing a lot of comparison between different types of plans and see which one seems to work best with your health issues. You should consider the following factors when choosing a plan:
- Your current health conditions – One of the most important factors in choosing your health care provider is your current health status. If you have an ongoing health issue that requires continued medical attention, you may want to go with a plan that allows you to stick with your doctor and current providers. Your HMO plan may provide this if your doctor is in the network of an HMO in your area. You can research this before signing up with the plan to make sure it is the best choice.
- How much you like your doctor – If you want to keep your doctor, you can do this with either the HMO or PPO plan. But if your doctor happens to be out of network, you will pay higher prices for care.
- The need for specialists – If you have a need for professionals, you may need to go with a plan that allows you to choose which specialists you deal with. Someone with an ongoing health condition may need to be referred to a specialist to deal with their exceptional condition or even have surgery, you will probably want to have either an HMO or PPO. This is because these are the only ones that allow you to go out of network and still help pay for the cost. You will still pay a higher price for out of network services, but you are allowed to do it. Going out of the network with the other forms of health insurance do not pay at all and require you to pay out of pocket.
- Current savings and reserve – If you have a good savings or reserve on hand, you may be fine with a combination of high-deductible insurance plan and an HSA (health savings account). The HSA was developed to go along with the high deductible plan to fill in the gap for what the insurance did not pay, such as medicine and special treatments.
Shop and compare for the best deal.
Choosing the right health insurance plan can be confusing. Should you go with a government health plan or choose your individual insurance company. Many times, it’s best to do some shopping of your own until you find what seems right for you.
No one can advise you better than yourself. However, our site can help by offering free quotes from some of the best health insurance providers in the United States.
So shop around and compare prices, as well as looking in detail at what each plan offers. Be aware of the type of service delivery model that your program uses so that you will be in a better position to choose wisely.
Your health care is necessary, and so is your health insurance. So think about your amount of expense in medications, your age, and your current health factors before making a final decision. The more knowledge you have about how insurance works, the better you will be able to make an informed decision and choose the right plan for your needs.
Ask your representatives what your premiums will be and if you qualify for any health discounts. You may also want to ask them if you should get an HSA (health savings account) if you opt for a high deductible plan.
Finally, if you are not happy with your current health care plan, shop our site and see what alternatives we may have for you. Click here to get started with free quotes!