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Understanding Your Health Insurance Out Of Pocket Costs

By Marilyn Katz

Republish: EasyPublish™ Published: 04Jan2011 Word count: 583 Viewed: 203 time(s) Get Free Content For Your Site

Health plans that cover one hundred percent of all health care costs would be great for many individuals. As good as full coverage would be, it would just cost too much!

Consider this. When you buy auto insurance, the policy does not usually cover flat tires or dead batteries. A policy like that would be too expensive. Most of these higher premium plans cover a ton of marginal services that people use, but are not essential in coverage. They may also cover services that you will never use at all. In the end, you pay a much higher premium for access to these services that are not really worth your while. A solid health insurance plan that covers all of the essentials but not necessarily everything under the sun might be the better and more economical choice.

To prevent moral hazard and the inefficiency of care, most health insurance plans have a built-in process to limit the use of marginal services. Health Maintenance Organizations (HMOs) for example, usually have more stringent constraints on care provided. One of these constraints comes in the form of "out-of-pocket costs". These costs are what you pay out of your own pocket even though you already have health insurance.

When out-of-pocket costs are too low, the health plan becomes expensive and inefficient. At the same time, when a plan's out-of-pocket costs are too high, the peace of mind and reduction of financial risk due to health costs is minimal making the investment only marginally worth it at best. For this very reason, the best deals are usually found with health plans that offer a sweet spot right in the middle of those two extremes. For these very reasons, it is very important to always be informed about how much out-of-pocket cost you are expected to pay with any health insurance policy.

Out-of-pocket costs come in different flavors, the most common of these being in the form of a "Deductible". This simply means that there is a certain dollar amount that you have to pay for covered health expenses before your health insurance kicks in and covers the rest. Each specific service covered under your health insurance policy will have varying deductibles. For example, you might have to pay $5 for each prescription or there might be one deductible for whatever services you receive during a whole year.

If a deductible is needed for each service covered under your insurance plan, then it is often referred to as a "Copay". Insurance policies with higher deductibles have a much lower premium and if an insurance policy has an extremely high deductible, it is sometimes dubbed as "Catastrophic Insurance".

"Elimination Periods" are like deductibles but instead of cash, they are counted in days. Some health plans use this in the event of hospital care and will not begin paying your stay at the hospital until a certain number of days have passed.

"Coinsurance" is the money you are expected to pay out-of-pocket for health care even after a deductible has been paid. Some health plans will tell you that certain services will require 20% Coinsurance. This simply means that you will pay 20% of the total cost of all services performed plus your initial Copay.

Having deductibles can save you a ton of money in premiums over the long term but it is important to find that middle ground where your investment in health care is still worth the coverage received.

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