Medical Insurance Explained

The cost of a medical procedure can be high, and often totals more than $100,000. The Office of Statewide Health Planning in California reports that a heart valve replacement in that state's capitol has a price tag of $337,704. Medical insurance, also known as health insurance, provides a system that spreads out these costs and allows citizens to afford expensive medical care when it is needed.
  1. Deductible

    • A medical insurance deductible is a set amount of money that must be paid out of pocket by the covered individual. An insurance company does not pay for medical procedures until the deductible has been met. Examples of common health insurance deductible amounts are $250, $500 and $1,000.

      If a person has medical insurance with a $500 deductible and a $2,000 X-ray is required, the first $500 is paid by the individual and the insurance provider would pay for the remaining $1,500. The amount of deductible can affect the cost of an insurance plan. Generally, the lower the deductible, the more expensive the monthly insurance premium.

    Co-insurance

    • Medical insurance does not always cover the full amount of a health procedure. If only part of the medical expenses are covered, the cost percentage that must be paid by the individual is called co-insurance. This amount often applies in addition to a preset deductible.

      A medical insurance plan might have a $500 deductible and also 15 percent co-insurance. This means that for a $2,000 procedure, the covered individual would be responsible for paying the first $500 and also $225, or 15 percent of the remaining balance. The remaining amount, $1,275 in this example, would be paid by the insurance company.

    Co-payment

    • Co-payment is similar to co-insurance. Like co-insurance, it is an amount of money that often must be paid by the individual. Instead of being based on a percentage, however, a co-payment is a set dollar amount. As with co-insurance, this dollar amount usually applies in addition to the deductible.

      If an individual has insurance with a $500 deductible and a $300 co-payment, for instance, the total out of pocket expense would be $800 no matter the cost of medical care. The advantage of a co-payment instead of co-insurance is that the out of pocket amount remains the same even if an expensive procedure is needed.

    Limit

    • Medical insurance plans often have limits in place to prevent the out of pocket expenses from becoming excessive. The out of pocket limit is the absolute maximum that an individual can be required to pay, regardless of the total medical procedure cost.

      If an expensive procedure with a cost of $100,000 was required and an individual had insurance with a $500 deductible and 15 percent co-insurance, out of pocket expenses without a limit would be $14,925, with the insurance provider paying $85,075. If the insurance plan included a $3,000 out of pocket limit, however, the insurance company would pay $97,000 and the individual expenses would be much more manageable.

    Premium

    • The premium is the monthly fee that is paid by the individual carrying medical insurance coverage. Premium amounts vary based on several factors, including the age, gender and health background of the person being covered. Generally, younger individuals without previous health problems have less expensive insurance premiums than the elderly and people with existing illnesses.

      The chosen options of an insurance plan also can affect the premium amount. When buying medical insurance, purchasers can decide which co-insurance, deductible and out of pocket limits they would like in the plan. More convenient options such as low deductibles raise the monthly premium, while options such as high deductibles and large co-payments result in lower premiums.

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