In recent years, the cost of health insurance has risen sharply. If your employer does not provide health insurance, you must either find affordable individual coverage or go without coverage. Many insurance companies now offer low-cost, high-deductible plans. But how do you know if one is right for you and your family?
The first health insurance plans were intended mainly to cover "major" illness or injuries. As with all insurance, health insurance works on the premise that the majority of subscribers will stay well and pay monthly premiums. If only a few become ill or sustain injuries, the model works well. Somewhere along the way, consumers began demanding more and more from their health insurance. Preventive care, doctor visits and prescription coverage became the norm. Unfortunately, when insurance covers such routine care, there is a tendency to use these services. The model is disrupted, and the prices of monthly premiums rise proportionately.
Many individuals who do not have coverage through their employer, or who become unemployed and lose coverage, experience sticker shock when shopping for comparable coverage. Because large groups negotiate with insurance companies, they tend to have lower deductibles and out-of-pocket costs. However, many of these plans cost more than $1,000 a month for a family.
Often, the levels of benefits in group plans are not even offered in individual plans. In order to reduce your total cost, you can choose an individual plan with a high deductible. The deductible is the amount paid before the insurance begins paying a percentage of costs for services. The subscriber's "co-payment" is the percentage of costs for which the subscriber is responsible. The total out-of-pocket expense includes both the deductible and the co-payments. Some plans include the deductible in the co-payment amount, and some plans do not.
Analyze Out-of-Pocket Expenses
It is extremely important to understand the fine print of your plan. Say a high-deductible plan costs $200 per month, with a $6,000 deductible and $5,000 co-payment. Your total yearly out-of-pocket expense for deductible, co-payment and premiums would be $13,400. If you choose a low-deductible plan--say $500 deductible with a $1,000 co-payment and a $1,000-per-month premium--your total yearly outlay potential would be $13,500. There are both individual and family "maximum out-of-pocket" amounts.
Your Risk Factors
By analyzing the total out-of-pocket payments and your family's risk factors, you can determine whether a high-deductible plan is right for you. If you are at low risk for illness or injury, and you don't mind paying for the occasional doctor visit that goes toward your deductible, a high-deductible plan can save you thousands of dollars per year in premiums if you remain healthy. If you take the difference in premium and bank it the first year, your risk is significantly lower from then on, allowing you to continue paying low premiums and have peace of mind if something catastrophic happens.
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