What is the Importance of Medical Health Insurance?
Why do we need medical health insurance? The likelihood of needing medical services from year to year is high. Insurers estimate against this risk and develop a financial structure whereby the insured can pay monthly instalments and cover themselves against unforeseen medical expenses.
Medical expenses can be quite considerable as compared to monthly premiums, and therefore medical health insurance is considered a necessity by most individuals. These policies can be administered by government agencies, private companies or non-profit organizations.
Medical Health Insurance Contract Options
1) Companies or governments acting as insurance providers issue contracts to individuals or their sponsors (such as an employer in the case of group health insurance). This contract can be renewed monthly or annually, or for the duration of an entire lifetime with private insurance. Some medical health insurance is part of government initiatives, as in the case of original Medicare.
2) ERISA plans are state-funded employer-sponsored medical health insurance. In this instance, the insurance company administers the act of insurance, but doesn’t engage in it per se. These policies are governed by federal laws and therefore not subject to state laws.
An individual’s medical health insurance obligations can consist of the following:
- Premiums are the regular amount of money that policyholders or sponsors pay for medical health insurance.
- Deductibles are the out of pocket expenses that the policyholder has to pay before the insurance company pays out. As an example, companies may insist upon a $400 annual deductible before allocating coverage. Therefore the insured must purchase goods and services or fill prescriptions to equal that amount before they are entitled to medical health insurance coverage.
- Copayments are the amount of money that the insured must pay before they are entitled to medical health insurance contributions for a specific service. A typical example would be a $50 copayment on doctor visits. In this instance, the copayment must be paid each time the person requires this service.
- Coinsurance replaces, or is additional to a copayment. This is a percentage of the entire amount of money a person is billed, without taking into account the amount covered by the medical health insurance policy. As an example, the policyholder could pay 25% towards the cost of a surgical procedure, and the insurance pays out the remainder. Depending on the overall costs, the insured can end up paying relatively little, or a considerable amount.
- Exclusions refer to the services that aren’t covered by medical health insurance. Policyholders are expected to pay for the entire cost of these services themselves.
- Coverage limits are the cash threshold where some policies stop paying out. Policyholders are expected to pay for costs above the coverage limit for particular services. Some companies adhere to a lifetime maximum, whereby coverage stops after a certain accumulated amount.
- Similar to coverage limits, out of pocket maximums are where a policyholder’s premium payments are stopped once they reach a cash threshold and the medical health insurance companies cover all subsequent payments. These can be restricted to a particular category (such as pharmaceuticals) or applied to the whole annual policy.
- Capitation is the amount of money paid to the medical health insurance company by the healthcare provider in order to treat all the company’s members.
- In-network Providers are healthcare organizations (providers) which are networked by the medical health insurance company in order to offer discounts on their services. Conversely, out of network providers usually charge more for their services.
- An Explanation of Benefits is a receipt that states the nature of the medical health insurance services received and the way in which payment was calculated and patient responsibility was ascertained.
How are companies billed for medical health insurance?
Most medical health insurance companies will bill the insurance company directly, provided the policyholder accepts responsibility for the amount if the insurers refuse to pay. Out of network providers usually bill the healthcare provider according to “reasonable and customary” fees. Often the healthcare provider and insurance company have a contract by which they agree as to what is discounted and what is capitation to regular fees. In network providers are usually more affordable for medical health insurance customers.