Health Insurance Costs Revealed
Healthy individuals may save money each month by opting for a health care plan with a low monthly premium and higher deductibles.
The cost of health care continues to rise at a rate higher than inflation. Up-front payments in the form of deductibles, co-payments, and coinsurance sometimes get a bad reputation, but they can actually be extremely beneficial to you in the long run. This is especially true if you are a healthy individual with little or no history of illness in your family. Below, we briefly explain the various health care costs.
- Premium: The amount of money charged by an insurance company for the health plan you’ve chosen. Typically, it is paid monthly, and you must pay this fee to maintain active coverage regardless of whether you use it or not. An individual earning less than $85,000 a year, for example, will pay $104.90 in monthly premiums for Medicare Part B.
- Deductible: A set amount you pay towards your medical bills annually. Once this limit has been reached, your insurance company steps in and foots the remaining bill. For example, if you pay a $500 deductible and a treatment costs $1,200, you pay the first $500 and the insurer pays the remaining $700. The insurance company then covers any remaining medical bills you have for the rest of the year. Higher deductibles can lower your monthly premiums.
- Coinsurance: The percentage of a medical bill you agree to share with the insurer after the deductible has been paid. It is normal to pay a coinsurance rate of 20 percent, which is known as an 80/20 plan.
- Co-payment: A flat fee you pay every time you go to the doctor or fill a prescription. For example, you may choose a $20 co-payment, which means you pay the first $20 of any doctor’s office visit or prescription drug you receive.
These Payments in Action – Real Life Examples
Deductibles and coinsurance tend to go hand in hand. If you have a $500 deductible and an ER visit costs $2,100, the remaining balance is $1,600. With a 20 percent coinsurance payment, you pay $320 of the remaining cost. If you have to go to the hospital again, you would pay no deductible and would only be liable for the coinsurance payment.
If you go to a doctor and are charged $100 after agreeing to a $20 co-payment, $80 is covered by your insurance company and you only have to pay the $20.
Cost Considerations, Healthy or Not
Young, fit, and healthy individuals are encouraged to commit to higher deductibles, co-payments, and coinsurance because the savings on their monthly premiums can be very impressive. If you don’t get ill for several years, skipping these “extras” will result in you paying higher premiums you shouldn’t really be paying.
What you end up saving in these premiums is immediate cash that could go towards a mortgage payment, family vacation, or student loan repayment. When you choose a higher deductible, you are increasing the likelihood of having extra disposable income. Even if you do have a bad injury or serious illness, you are still covered by health insurance and will only be paying an amount you know you can afford. Obviously, you should only look to pay “extra” toward a deductible when you know the spare cash is available.