Purchasing Health Insurance: What to Remember

The U.S. healthcare costs are high, necessitating thoughtful selection of health insurance considering coverage details and premiums.
Employer-provided health insurance is cost-effective; consider coverage, premium costs, continuation, and dependent coverage.
Consider monthly premiums, covered services, network restrictions, and out-of-pocket costs for individual health insurance.
Maintain an emergency fund to handle unexpected healthcare costs not covered by insurance, providing financial security.

Healthcare costs in the United States are notoriously high. Many factors contribute to these inflated costs, including the use of medical technology, prescription drug prices, and administrative costs. According to data from the Commonwealth Fund, the U.S. spent $12,555 per person on health care, which is more than twice the average of other developed countries. Similarly, a study published in the Journal of the American Medical Association revealed that administrative costs comprised 8% of total national healthcare expenditure, significantly higher than other nations. This data underscores the importance of considering these aspects when purchasing health insurance.

Fortunately, health insurance will help mitigate the financial blow of skyrocketing healthcare costs. However, selecting health insurance can be daunting for many individuals as numerous options are available. It is essential to remember several key factors when purchasing health insurance to ensure that you make an informed decision and get coverage that best meets your needs. Here are a few of them:

Check Your Employee Perks

Many employers offer health insurance as part of their benefits package. Before purchasing individual health insurance, check whether your employer provides this benefit. It's a cost-effective option, as employers typically cover some premium costs.

Coverage Details

Evaluate the coverage provided by the employer-based policy. Consider deductibles, out-of-pocket maximums, copayments, and whether they cover your preferred doctors and hospitals. Also, see if the plan covers the specific services that you or your dependents may require, like prescriptions, mental health services, or maternity care.

Premium Costs

When considering employer-provided health insurance, examine the premium costs. Even though employers usually pay a portion, the remaining amount can still be significant. Ensure you can comfortably afford the premium payments without straining your monthly budget.

Potential for Continuation

Understanding what happens to your health insurance if you leave your job is essential. Some employer-based health plans offer COBRA continuation coverage, which lets you keep the same health insurance for a certain period after job loss. However, you may have to bear the premium cost, which can be pretty high.

Dependent Coverage

Of course, you'll want your dependents, like spouses or children, to have health insurance, too. If you purchase health insurance through an employer, investigate whether they offer dependent coverage and at what cost.

Consider Individual Health Insurance

Securing individual health insurance becomes crucial if your employer does not offer a health insurance benefit or the provided plan does not meet your needs. Personal health insurance can provide adequate healthcare coverage tailored to your needs and budget constraints. With rising healthcare costs, having health insurance can prevent significant financial hardship related to unforeseen medical emergencies or ongoing health issues.

Here are a few factors to consider when paying for individual health insurance:

Monthly Premium and Services Covered

It is essential to consider the health insurance's monthly premium you must pay for your health insurance and how it will fit into your budget. The lower the tip, the higher the out-of-pocket costs for medical care. Simultaneously, consider the services covered under the plan. This includes hospitalization, outpatient procedures, prescription drugs, and preventive services like vaccines and screenings. Make sure the insurance policy covers the health services you need most.

Network Restrictions

Some health insurance plans have network restrictions, covering a specific list of doctors and hospitals. Before buying a plan, check whether your preferred healthcare providers are within the plan's network. If they are not, you may have to pay more or even the total cost of healthcare services from these providers.

Deductible, Copayments, and Out-of-Pocket Maximum

The deductible is the amount you must pay before the insurance company starts to pay its share. A lower deductible often means higher monthly premiums and vice versa. Copayments are the fees for each healthcare service, like visiting a doctor or filling a prescription. You could pay the most out-of-pocket maximum for covered services in a year. Consider these factors relative to your health needs and financial situation when evaluating individual health insurance plans.

Prepare Emergency Fund

Regardless of how comprehensive your health insurance might be, it is vital to maintain an emergency fund for medical purposes. Health insurance is designed to cover many healthcare expenses but may not cover all costs. Deductibles, copayments, and out-of-pocket maximums can add up quickly, particularly in a sudden illness, accident, or chronic health condition. You would need to bear these costs, and having an emergency fund can help manage these unexpected expenses without causing financial distress.

In addition, there may be specific treatments or medications that are not covered by your insurance plan. In such cases, an emergency fund can help you afford the necessary care without compromising due to cost. Therefore, an emergency fund serves as a financial safety net, ensuring you have access to the care you need when you need it the most.

A basis for building an emergency fund is to save three to six months' worth of living expenses. When estimating your monthly living expenses, include any possible healthcare costs, such as health insurance premiums and out-of-pocket payments.

Final Thoughts

Health insurance is essential for financial security as healthcare costs continue to rise. Whether through an employer or individual purchase, research and evaluate different plans to find one that meets your needs and fits your budget. When deciding, consider the coverage details, premium costs, network restrictions, deductibles, copayments, and out-of-pocket maximums. Lastly, don't forget to prepare an emergency fund as a safety net for any unexpected healthcare costs. These factors will help you make an informed decision when purchasing health insurance and ensure you have access to the necessary healthcare services without causing financial strain.