Understanding Health Insurance

By: Christian Rios

Health insurance helps reduce medical costs (major andminor) in the event you or a loved one needs some form of medical assistance.Managing your potential risk for major medical expenses includes two things: asolid health insurance program and good self-care. While self-care is free,health insurance is definitely not. Health insurance can be purchased by theindividual, provided by an employer, or can be provided through the government.This article will discuss some of the many variables you should take intoconsideration when deciding between health insurance programs.

Coverage Limits - There are two limits that must be notedwhen selecting an insurance program: coverage per year and coverage perlifetime. Coverage per year is the maximum your insurance company will pay-outfor any single illness or injury. Did you get into a major auto accident thisyear? If your coverage per year limit was one million dollars, then theinsurance company would pay up to one million dollars for your auto accidentmedical bills. Next year you get diagnosed with a curable disease and the newlimit is again one million dollars because the events occurred in differentyears. Coverage per lifetime means exactly what it says: your limits aredepleted as time goes by and you accrue medical bills. On a long enough time line,the lifetime limit will be reached while the coverage per year limit will bereset at the beginning of each year.

Out of Pocket Expenses - This is where co-payment comes intoplay. To limit your out of pocket expenses, you could select a very low co-paymentso that whenever you visit a doctor or the emergency room, you will pay aflat-rate fee, such as $20 per visit. Or, you could choose a % split betweenyou and the insurance company such as a 20/80 split. This means the insurancecompany will cover 80% of your medical bills while you are responsible for theremaining 20%. While the percentage split may not sound bad, it can get quiteexpensive if you have the need for major medical assistance such as a surgicalprocedure that could easily cost hundreds of thousands of dollars. Whenconsidering a health insurance program that offers a percentage co-payment,make sure there is a cap limit to your responsibility, such as $5,000 or$10,000 per year.

By having a cap in place for your responsibility, you aresafeguarded from an unexpected medical emergency that could put you in debt forthe rest of your life. If your insurance policy does not have a cap to yourresponsibility and you are unable to switch insurance carriers, you canpurchase what is called an Excess Major Medical policy. This additional policytypically pays 80% of your responsibility on your first policy. For example, ifyou have a base insurance policy with a 20/80 percentage split and you accruemedical expenses totaling $100,000, you are financially responsible for $20,000of that debt. With the Excess Major Medical policy in place, yourresponsibility would be cut to only $4,000 of that $20,000. The combination oftwo policies (if you can afford the premiums) can dramatically reduce your medicalexpenses should you require major medical attention.

Internal Policy Limits - Many smaller insurance programscontain their own internal limits beyond the per-year and per-lifetime limits.These limits could include such caps as room and board or surgical procedures.It's very important that you ask if these types of internal limits exist withyour current insurance provider. If they do, either try to switch insurancecompanies altogether or in the event that you cannot switch carriers, you shouldpurchase an Excess Major Medical Policy to help cover unexpected major medicalexpenses.

Health Insurance
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