Health plan benefits come in a variety of shapes and sizes. When new employees are hired, or when annual election periods occur, a booklet of benefits is usually available to explain the choices that are being offered. But the realm of health care benefits can seem to have a language of its own, and often making educated election decisions can be stressful and confusing. Factors to consider when making an election include annual premiums, deductible amounts, co-insurance, and out of pocket maximums.
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Annual Premiums for a Health Plan
For the most part, when an employee receives health care benefits through his place of work, the employer pays for a portion of expenses related to the employee’s plan. The remaining portion is the responsibility of the employee, and this amount is usually divided into increments that are due each time the employee gets paid. These increments are called premiums, and they work in the same way that car insurance premiums do. As long as the employee maintains his eligibility for the health care plan, and continues to pay his premiums, his health care plan will stay active. If an employee fails to pay his premiums, his health care coverage will end. Usually, premiums are automatically deducted from an employee’s paycheck before taxes are deducted, which means that the amount of income the employee is taxed on is reduced by the amount of his health care premium for that pay period.
The cost of health care premiums can vary greatly, and if there is more than one option for coverage at a company, the premiums may seem more favorable with a high-deductible plan versus a low- or no-deductible option. In these instances, it is important to calculate the yearly total of each premium (multiply the per paycheck amount by the number of paychecks received in a year), and to add that amount to the other expenses the policy carries, such as deductible, co-pay, and out of pocket limits, in order to come up with an accurate idea of how much each plan will cost. The plan with the lowest premium won’t always be the most cost-effective plan after these other factors are considered.
Health Insurance Deductibles
A deductible is the amount of money a person must pay out of his pocket before his insurance carrier will begin to pay for his health care. Sometimes, there is no deductible associated with a health care plan. These plans usually have a larger premium, but the policy holder will only pay a flat rate co-payment for each medical service he receives, regardless of how many times he needs medical attention, or how expensive the office visit or procedure is.
Plans that do require a deductible often have lower monthly premiums. This is partially due to the fact that the policy holder will be responsible for meeting the set deductible on the plan before they are eligible for coverage. Most deductibles range from $500-$2000, and restart annually, according to the Kaiser Family Foundation’s Employer Health Benefits 2008 Survey. After a deductible has been met, an insurance policy will cover a percentage of all health care costs from that point on. This is called a co-insurance amount. Sometimes, after the deductible has been met, a policy will then cover 100% of all eligible expenses for the policy holder. This means that after paying the deductible, the person receiving health care benefits is no longer financially responsible for medical services.
Co-Insurance for a Health Plan
Co-Insurance is the portion of health care coverage expenses that an individual is responsible for after meeting his annual deductible. This amount can either be paid directly by the policy holder, or the individual might purchase a supplemental insurance policy to cover the co-insurance amount that his primary insurance carrier does not cover. The Medical Expenditure Panel Survey states that the average co-insurance percentage of cost to a medical insurance policy holder in 2006 was 18.5%. This means that for every $100 spent for health care, the patient was responsible for $18.50.
Out of Pocket Maximums
A co-insurance amount will usually have a maximum cap, called an out of pocket maximum. This maximum is the most an insured person has to pay before his plan will cover 100% of any remaining expenses. If a person’s out of pocket maximum is $1000, he will only have to pay his co-insurance amount for medical service until he has paid $1000 out of his own pocket; at that point, the insurance company will begin to pay for all services in full. Often times, the health plan’s deductible will apply toward the out of pocket maximum. For instance, if a plan has a $500 deductible and a $1000 out of pocket maximum, the policy holder will only be responsible for his co-insurance amounts until the remaining $500 of his out of pocket is met after he pays the first $500 toward his deductible. When choosing a health care insurance plan, it is very important to find out whether a deductible plan has an out of pocket maximum, and whether the deductible for that plan applies to the out of pocket max, or not. This can mean a significant difference in what a plan holder is financially obligated to pay for medical expenses each year.
Understanding the general terms of most health insurance policies can help consumers make better informed selections when choosing from several coverage options offered to them. The lowest premium plan is not always the best, and the smaller deductible might not be the most cost-effective. It is beneficial for a person to evaluate what current health care needs she has, as well as to look at any possible events that might change her health care needs in the near future, such as planning to get pregnant or participating in an event or sport that has a high probability of injury. Taking these precautions when deciding on medical insurance can satisfy the need for health care and the need for saving money at the same time.
