The Importance of Having Sufficient and Appropriate Health Insurance
The costs of healthcare in the United States are very high. Unless you're extremely wealthy, very poor, or over 65, you'll need appropriate and sufficient health insurance to be able to meet these costs. The wealthy can afford these high costs of healthcare, senior citizens aged 65 and above can qualify for Medicare while the very poor can sometimes access health care by qualifying for Medicaid.
So for a huge majority of Americans, the best way to afford the high costs of healthcare in the country is through health insurance. Without appropriate health insurance, chances are your entire life savings could be wiped out by your medical bill in case of extraordinary emergency or chronic medical care. In other words, the main aim of having health insurance is to enable you to afford health care and protect your life savings from the high medical costs should you suffer from a devastating illness or accident. In essence, you need health insurance even if you're very healthy.
How Much Health Insurance Do You Need?
Although health insurance is of great importance, issues often arise when it comes to how much health insurance one needs. Well, there are a lot of things that may affect how much health insurance you need but that's just beside the story. The truth is, we all do not have much freedom of choice when it comes to knowing exactly what you need, and here's why.
Unlike auto and home insurance, there are no assets that are being insured so it's almost impossible to place value on the health insurance that you and your family will need. And given that the costs of health are always huge, health insurance companies often manage or hedge their risks by being vague about the exact amount of health insurance that you need. In most cases, you'll be offered increasingly detailed cost-sharing contracts that have little or no customization as the exact amount of health insurance that you need.
Of course, you can just blame health insurance companies for this. The health care market generally lacks transparent market-based pricing. For example, the cost of treating a particular disease in a given hospital or city might be quite different from the cost of treating the same disease in another hospital or city. If anything, patients in the U.S. medical industry will only have access to pricing information after the medical services have been rendered.
Again, it's almost impossible for patients to compare health services based on price since many health service providers will only disclose their prices once the services have been offered. The fact that almost 85% of Americans rely on government health programs such as Medicare also makes it a lot harder to pinpoint exactly how much health insurance you need. In essence, the question about "how much health insurance do I need?" is shifting to "what type of health insurance plan can I get?"
Your freedom on choosing how much health insurance is also diminished by the fact that most health insurance today is offered on a take-it-or-leave-it model. This lessens your freedom as you only get the option of choosing how many people to include in your health insurance plan. This is more common in employer-sponsored health insurance plans, which cover most Americans. Again, such employer-sponsored health insurance plans can cost you less compared to individual health insurance plans since the employer tends to pay the entire premium or a large chunk of the premium.
Individual Health Insurance and the Importance of Affordable Care Act (ACA)
As we've just noted, many Americans generally rely on employer-sponsored health insurance group plans for their health insurance plans. Alternatively, you can choose to buy your own health insurance plan to cover you and your loved ones. Known as individual health insurance, you can purchase this health insurance plan from a private health insurer or through a government exchange. This is quite possible thanks to the Affordable Care Act (ACA).
Unfortunately, the question of how much health insurance do I need is no longer important as it used to be. This is because the Affordable Care Act removed annual and lifetime limits on benefits from any health insurance plan bought through the government exchange or employer-sponsored programs.
How Much is Your Maximum Out-Of-Pocket Limit?
So thanks to the Affordable Care Act, your main priority should revolve around how much out-of-pocket limits can you attain based on a particular health insurance policy. While many people are well aware of the deductibles, these aren't the only expenses you'll have to deal with. There are out-of-pocket limits, which are very important. To make it a lot easier to understand, let's highlight a few things here.
- Monthly premiums - Just like home or auto insurance, you are required to make monthly premiums on your health insurance even if you'll never make a claim. By doing so, you'll be providing cash flow for the insurance company to cover you and others.
- Deductibles - This is the amount of money that you're required to pay before the insurance company contributes any money. You'll have to pay them every year.
- Co-payment - While the costs may vary, this refers to the small amount of money that you pay when you go to the hospital, visit a doctor, or in need of a prescription.
- Co-insurance - This refers to the percentage that you pay for various procedures such as surgery or hospital stay.
As you can see, the above-described things are collectively referred to as out-of-pocket costs. They're put in place to prevent you from running to the doctor or hospital every time. Without these out-of-pocket costs, the health costs would be astronomical and you have to pay them even if you have health insurance.
The best part about out-of-pocket costs is that they have limits and cannot exceed that given amount. According to eHealth, the maximum out-of-pocket costs for 2020 are $8,150 for individuals and $16,300 for a family insurance plan. Once you pay that, your insurance company should cover the rest.
So how can you know the right amount of coverage for your health insurance? Well, you can choose to pay a higher monthly premium and go with a lower deductible and coinsurance. This can be an ideal option if you have chronic diseases that may require you to frequently visit a doctor.
On the contrary, you can choose to go with a lower premium but with higher deductibles and coinsurance if you're healthy and willing to take the chance of paying more when an issue occurs because you believe that your chances of getting ill are quite small.
All in all, it is essential to go with a health insurance plan that works for you and your situation. Remember, your monthly insurance premiums can be affordable if you go with higher deductibles but you'll need to have sufficient cash flow to cover the deductibles when you fall sick or get injured. On the other hand, you can choose to go with higher monthly premiums and minimize your deductibles if you do not have sufficient liquid reserves to cover the huge deductibles when you get sick.
In essence, just go with what works for you. After all, health insurance can be complex and the so-called "rules of thumb" are not always conclusive. You can, therefore, measure your ability to pay the out-of-pocket maximum and use it in pinpointing the right amount of health insurance coverage for you. Simply put, the maximum out-of-pocket limit is your financial safety net and is the most you have to spend on your health in a year. All you have to do is reach this limit and the insurance company will pay 100% for your health for the entire year.
Which Health Insurance Plan is Right for You?
As we noted earlier, the right amount of your health insurance plan will vary depending on factors such as your personal choices, location, the number of family members you want to be included in the plan, your age, income, location, and state and federal rules. But when it comes to buying an individual health insurance plan from a private insurer, the right plan for you will not be determined by the costs but with the benefits or services that you want provided within your chosen health insurance plan.
That being said, here are some of the factors that may affect how much health insurance you need and the type of plan you go for.
- Your income - You are likely to pay more through an employer-sponsored health program if you are a low-wage employee but you can pay less through government exchanges thanks to subsidies put in place by the Affordable Care Act.
- State and federal laws - These laws often dictate things that health insurance in your area must cover and how much a health insurance company can charge you.
- Location - Health insurance premiums are generally lower in urban areas where accessibility to medication is a lot easier than in rural areas where accessibility to medication is harder.
- Your Age - Your health insurance premiums will be quite affordable if you're young and of great health but may cost older individuals up to three times more.
- Lifestyle - Your lifestyle can hugely influence the amount of insurance premium that you pay. For example, you can pay up to 50% more if you smoke cigarettes.
- The type of insurance plan you choose - Platinum plans and Preferred Provider Organizations (PPOs) will cost more than gold and silver plans.
Health Insurance Rules of Thumb
Here are some of the most important things to consider when looking for the right insurance plan for you.
- Know about your health - Doing a complete health inventory is of great importance if you want to know the right type of health insurance for you and how much health insurance you need. How much do you always visit the doctor? Do you have chronic health issues? In other words, assess your risk.
- Survey your options - You should understand your choices and plan options and determine what can work best for you based on your income, age, location, and other factors.
- Gauge your health care consumption - By knowing how much you always go to the hospital, it will be a lot easier to determine your out-of-pocket limit and this can give you a rough idea of how much health insurance you need.
- Know your priorities - Of course, you have to know what works for you as far as health insurance is concerned. Do you want affordable premiums or higher deductibles? It will depend on your cash flow and whether or not you have chronic diseases that might force you to frequently visit the doctor.
- Find what works for you - Narrow down your priorities, compare details from various insurance providers and go with what best fits your situation.
- Get a second opinion - Talk to those who are well familiar with insurance and get their opinions. Consulting an insurance agent can be the best thing to do.
- Get health insurance - No matter your situation, always keep in mind that the costs of healthcare are so high, and getting sufficient health insurance is of great importance.