How Major Medical Insurance Works
Understanding medical insurance and how it works is the key to finding the best health care policy for your needs (and budget!) The first things to take a look at are your rights and responsibilities.
The health insurance premium
Buying a medical insurance policy is more of an ongoing process than a one time purchase. To maintain your health coverage, each month you pay a fee, or premium to your medical insurance company.
This payment is similar to club dues. The money is not earmarked specifically for your use, but is instead the cost of membership. In this case, your premium won't go only towards your future health care services; it's simply the fee you pay to be covered by your health insurance company.
The deductible, co-payment and co-insurance
But the cost of health services is not simply eliminated by paying the monthly premium. There are other costs associated with major medical insurance coverage.
The first cost you'll encounter is the deductible. The deductible is a pre-arranged dollar figure that you'll have to satisfy before the health insurance company begins to contribute any money to your health care costs.
Your deductible can be a significant out-of-pocket expense, particularly because it must be satisfied each year before the company pays.
Deductibles can range from a few hundred dollars to a few thousand. Some health insurance policies do not have deductibles ever and others have them only in certain cases.
The other expenses are co-payments and co-insurance. All medical insurance policies will ask that you agree to one or both of these charges. Co-insurance means you'll be required to pay a certain percentage of your health care costs, and a co-payment means you'll be required to pay a certain dollar figure for each service.
These are usually charged in addition to a deductible. However, in either case, the medical insurance company should pay a substantial amount (or percentage) in comparison to your financial responsibility.
The point of having medical insurance is, after all, to alleviate the financial burden on you and your family in case of medical emergencies and/or chronic illness.
Other rights and responsibilities Major medical insurance policies will contain sections to protect both you and your health insurance company from having to pay too much money toward services.
Medical insurance companies are protected by a "lifetime payout provision", which limits the amount the health insurance company is responsible for paying in your entire lifetime (usually in the millions).
It is a good idea to have a high maximum payout, or you will run the risk of prematurely depleting your coverage.
The provision that protects you is called the out-of-pocket maximum and it limits your (you guessed it) out-of-pocket expenses during a given year. Once this limit is reached, your medical insurance company will compensate you for 100% of your health care costs. This limit is particularly important in the event of a serious illness.
