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Why Health Insurance Costs What It Does October 17, 2011

Posted by solutionsinsuranceservices in Health Insurance, Individual Insurance.
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I quote health insurance for a living.  As a licensed health and life insurance agent, it’s what I do.  People are often shocked at how much health insurance costs but, when put into perspective, there is one reason health insurance costs a lot, because healthcare costs a lot.

Pricing of individual health insurance is based on several factors including where you live, your age and gender as well as if you are a smoker or non-smoker and your personal medical history.  It’s all about the exposure and risk that they, the insurance company, is accepting for you.

Where you live comes into play because some hospitals and other medical providers are significantly more expensive than the others.  If you live close enough to them that there is a likelihood you would go there in case of needed treatment, your rates will be higher because your cost of treatment is likely to be higher.

Age and gender comes into play because underwriters can accurately predict what expense the average person of your gender and age would generate.  Lastly, your medical history and whether or not you are a smoker are considered because that determines what conditions you are at higher risk for and what extra premium they need to charge you to make up for that added financial exposure.

It’s all very precisely based on actuarial tables and underwriting standards.  The fact of the matter is that the insurance company is willing accept the risk of covering you and charge a premium based on what they anticipate their insured’s will cost.  This amount plus a profit margin of generally somewhere around 6-10% is where the premium comes from.  Of course the requirements of the State regulatory agencies come into it because each insurance company is regulated to make sure they can pay the claims that are presented to them.  Because of this, they must maintain adequate financial reserves to pay the anticipated claims that their insured’s would generate.

The insurance carriers have contracts with the hospitals, doctors, labs, pharmacies, etc to get discounts and try and keep the premiums down but the biggest factor in the cost of healthcare is you.

You are looking to buy health insurance not only to cover your doctor’s office visits, your lab costs and the prescription medications that you take, but also to cover that “what if”.  I have a client that was recently diagnosed with breast cancer, she is having surgery tomorrow and her out of pocket cost will be $4,500.  That is the amount that her insurance won’t pay because of deductibles, co-pays and co-insurance.  She is very happy not only that this was caught early on but also that she spent the extra money and added an accident policy with a critical illness rider to cover this “what if”.  Because of that, once her claim is approved, she will qualify for a one time payment of $10,000.  This will not only cover her out of pocket medical expense but also be able to help with the other expenses that come with having surgery and the related recovery time, not to mention the lost income for the time that she can’t work.

According to the National Conference of State Legislatures, the average cost of an individual health policy in the U.S. in 2009 was $502.43. Yes, people in their early to mid 20’s can expect to pay $120 – $180 a month for coverage but, people in their 60’s paying upwards of $800 or $900 a month is not at all uncommon.

I live in Florida which happens to be one of the most expensive states for healthcare. There are many reasons for this, increased skin cancer rates are just one example.  This compounded with an already high national average just makes finding a cheap plan in Florida impossible unless you know how to bundle multiple products together.

A male in Florida turning age 65, enrolling in Medicare for the first time will pay $115 a month for Medicare Part B and then can expect to pay about $325 a month for a good Medicare supplement to cover the things that Medicare doesn’t cover.  Then add onto that, Medicare Part D Prescription Coverage that can range anywhere from $50 to $150 a month and you end up with a total premium of at least $500.  That’s for a government program, much of which is paid for for with tax dollars and, you still have a deductible.  Again, this is Florida and most of the rest of the nation is much less expensive.  Even in Florida there are creative ways to get excellent coverage and save money.

Finding affordable coverage is possible, depending upon your expectations.  Many people pay $200 a month to insure their car and that doesn’t even include the maintenance.  You are worth more, can potentially cost a lot more to repair and are a lot more expensive to maintain.

We all need health coverage.  Get it today because you need it.  Change it in the future because hopefully something better will come along!

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