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The Different Costs Involved in Health Insurance

The Different Costs Involved in Health Insurance

Health insurance involves different cost considerations that make it imperative for an individual to learn the meaning of the different terms involved. The terms that one often comes across are deductibles, co-payments, coinsurance, maximum out-of-pocket expense and maximum plan limit.

The different terms in regards to health insurance were approved by the Federal government in February 2002. The Interdepartmental Committee reviews these definitions periodically and are subsequently updated.

Coinsurance - It is the shared cost in a health insurance plan borne by the insured person which is a percentage of the total medical expenses after the payment of deductibles, if any. After the payment of deductible and coinsurance, it is the responsibility of the insurer for the reimbursement that is left for the covered benefits, going up to the allowed charges. The insurer may also charge the individual with what they find to be usual, reasonable and customary.

There could be different rates of coinsurance in cases like receiving services from an approved provider or provider not on the list of approved providers. Coinsurance rates could also differ for many other services.

Copayment - It is the cost shared by the insured person in their health insurance plan. The insured person has to pay a certain amount for the cost involved while availing medical service. The insurer pays for the rest amount. For different services, copayment could be different. In certain plans, a deductible has to be first met while availing specific services before the application of copayment.

Deductible - It is the fixed dollar amount that an insured person has to pay in the benefit period, which normally is a year before payment by the insurer starts for all the covered services. There could be separate deductibles in case of some specific services. For instance, there could be hospitalization deductible each time an admission takes place. Again, if an approved provider provides services or those providers who are not on the list provide the services, the deductibles would differ.

Maximum Out-of-Pocket Expense - It is the maximum dollar amount the member has to pay for their medical expenses in a year. This expense is all the more important in case of health insurance policy which has coinsurance. For example, if your medical treatment costs $300,000 and your insurance asks you to pay 20%, then you have to pay $60,000 in addition to the deductible. One has to bear the maximum out-of-pocket, coinsurance maximum or the stop-loss amount.

Maximum Plan Limit - It is the maximum amount that the insurer agrees to pay for expenses in the covered plan for the insured individual. The amount limit could be for a year and / or lifetime. The typical maximum plan limit for lifetime is $1 million for each individual.

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