Understanding the Costs and Benefits of Health Insurance
In the modern world, there are many things that are essential like your home, job and car. You are willing to work hard to get and protect these things, so you may want to add health insurance to your list of essentials. After all, without your health, all of these other things are quickly put at risk. With health insurance, you gain access to physicians, pharmacies and hospitals which greatly improves your chances of remaining healthy.
In addition to improved health, you also obtain greater financial security with a health plan, but there are also some costs associated with insurance. You must make monthly payments in the form of premiums, and there may be some out-of-pocket expenses if you see a physician. For many people, the benefits of having health insurance far outweigh the costs, but before you decide, consider the following.
Why Health Insurance is the Smart Option
In 2015, almost 90 percent of all Americans had health insurance, up from 87 percent in 2014, and 85 percent in 2013. There are a number of reasons why this figure is rising, but the most important one is that people are increasingly recognizing that having health insurance is much smarter than going without. If you are not insured, you are gambling that you won’t get seriously injured or ill, and that becomes a more dangerous risk as time goes by.
According to the Kaiser Family Foundation, there is a five percent chance that someone 25 to 34 years of age will have a medical emergency costing at least $27,000, and a ten percent chance of having an emergency costing more than $13,000. Without insurance, these people could be saddled with debt for years or have to declare bankruptcy.
On the other hand, a person in their twenties would pay an average of $2,800 in annual premiums (based on 2011 figures) to maintain health coverage throughout the year. This translates into a couple hundred dollars a month, but you may qualify for a government-subsidized plan or Medicaid if you meet some income eligibility requirements.
Although the primary reason to be insured is financial protection in the case of a catastrophic event, health insurance also diminishes the costs of many other medical services including preventive care, prescription medications and routine services. Depending on the type of insurance policy you obtain, many of these services may even be free.
The lower cost of getting medical products and services is also the reason why health coverage actually improves your health. Studies show that mortality rates decline almost 3 percent when people get health insurance. Not only does getting health coverage extend your life, it also makes the life you lead more satisfying. People who have regular access to a physician are able to get better life management advice about diet, exercise and medical issues. Availability of cheaper medications means you are more likely to follow doctor’s orders and stay healthy, leading to a better quality of life.
Finally, there is the peace of mind that results from securing you and your family’s future. You may not realize the toll that financial insecurity takes on your psyche. Without the protection of a robust health plan, you are jeopardizing your family’s health and financial safety. You should know that almost 62 percent of all bankruptcies in the U.S. are related to medical expenses, making it the leading cause of financial insolvency.
Paying into the System
There are some wonderful benefits to having a health insurance plan, but they don’t come free. Insurance is a financial instrument that you must purchase as a policy from a health insurer. Insurers only offer policies because they aggregate risk from many policyholders. In other words, they analyze the likelihood you will get ill and use that to determine the policy costs for people in your age group.
You must make monthly payments called premiums to maintain your health coverage. The younger you are, the lower your premiums, because there is a greater risk of injury or illness as you age. While insurers are not allowed to consider pre-existing health conditions when issuing you a policy, age remains a factor.
Your premium will also vary depending on where you live. Your insurer may allow you to use only physicians in a certain region because they have calculated the health care costs based on your geographic location. They will also have contracted with medical groups in your area at a fixed rate for the services they provide.
While health insurance premiums are how much you must pay to the insurer each month, there may also be additional fees when you obtain a service. These are often called out-of-pocket expenses because they are expenses you must pay yourself.
- Deductible—this is the portion of the bill that you must pay before your insurer begins paying out. This is usually a fixed, annual amount that you must pay first before your insurer starts covering expenses.
- Co-payment—this is the fixed fee you must pay for certain products or services in addition to a deductible.
- Co-insurance—this is a percentage of the bill you must pay. The percentage may vary depending on if you are seeing a provider within or outside of your insurance network.
- Amount over policy limit—your policy will only provide so much coverage on a year. Once your policy limit is reached, you will be responsible for any additional medical expenses.
All health plans have some combination of these fees, so it is important to carefully read the policy prior to purchase. In general, the more robust coverage—i.e. lower out-of-pocket fees, higher policy limits—will typically cost you more in monthly premiums. Shop around with a number of insurance companies to find the policy that best meets your needs. Don’t be afraid to ask your insurance agent any questions about new terms or concepts; they may be there as a sales representative, but they want you to understand and be happy with your policy so you remain with them for the foreseeable future.
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