Five Important Health Insurance Terms
I: Premium
A premium is simply the amount you must pay every month to the health insurance company to ensure you keep yourself insured. It is essential to know what your premium is, in fact it is the first thing that you should be thinking about when choosing a health care plan. Also, don’t forget to factor in costs such as coinsurance, deductibles and co-payments. You should choose a plan with a high deductible, if you want a lower premium which would enable you to save money right away. If you choose a plan with a lower deductible, you need to be prepared to pay a higher premium but this will help you be financially prepared for any future ailments.
II: Co-payment
This is the amount of cash that you may have to pay up front for a certain type of medical service. For instance, if you receive a prescription drug, you may have to pay the $30 cost yourself, but the insurance company will take care of the additional costs. For those of you who unfortunately, are a regular at your local physician, choose a co-payment that you can afford, as the initial bills can pile up if you’re a frequent visitor to the doctor’s surgery.
III: Deductible
This is the amount of money that you must initially pay for medical services before the insurance company steps in and reimburses you. Monthly premiums and co-payments don’t always count towards a deductible, so beware. It is not a prerequisite for a plan to have a deductible, but it does serve the useful function of keeping your premium costs low. Do not allow your deductible to be greater than 5% of your annual income. In other words, if you earn $50,000 a year, don’t have a deductible of above $2,500.
IV: Coinsurance
This is the sum of money that must be paid after deductibles and co-payments have been taken into account. It is common for an insurance company to pay only up to 80% of your medical services. So, this means you are responsible for paying the other 20%, even if you have already satisfied your deductible payment. The 20% you pay is known as your coinsurance, and these 80/20 coinsurance plans are quite popular amongst insurance companies.
V: Maximum Out-of-Pocket Costs
This is an important consideration to make when you are planning health insurance, as it decides what the maximum amount of money you are forced to pay yourself is. Out-of-Pocket costs usually consist of coinsurance, deductibles, and co-payments. Once you have paid the maximum amount allowed by your policy, the insurance company is liable for all the remaining health care costs you incur that year. Remember, your premium does not count towards these Out-of-Pocket costs.
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