How Much Should You Budget for Health Care?

"I have a new health insurance policy. How can I figure out how much my family's health care costs might be this year?"

Good question. To find out, you'll need to get out your benefit booklet and read it carefully. Since every health insurance company in America offers many versions of their own unique plans, your own costs may be different from your neighbor's or even your coworkers' costs.

The important things to look for in your benefit booklet are:

1. Your premium
2. Your deductible
3. The percentage your insurance pays after the deductible, and your "stop-loss" clause
4. Which services are covered by copays, and which ones have coinsurance
5. Which providers are covered, and which types of providers are excluded from benefits
6. Which services are covered, and which services are excluded

Your premium:

Your premium is the amount you pay each month, whether anyone gets sick or not. If you have an individual family plan, you will pay all of the premium. Some employers pay the premiums for their workers.

If you pay your premiums yourself, you already know how much you pay each month. To budget for your yearly expenses, just multiply by 12.

Your deductible:

Unless you have an HMO, which is becoming less and less common, you will probably have a deductible each year. This is the amount you will need to meet before you get any benefits from your plan for some (or all) services.

This is an annual charge, which is paid by you to your physicians, hospitals and other medical providers, before your insurance company begins picking up any portion of the bill.

If you have three family members, multiply this deductible by three, and add it to your premium costs. If you're lucky, you won't have any medical bills at all, and you won't need this much money. But unfortunately, accidents and illnesses do happen. After all, that's why you have insurance. Many policies limit the number of deductibles that must be paid. For instance, if three family members have met their deductible, the fourth family member may not have to. This will be covered in your benefit manual.

The percentage your insurance pays after the deductible:

Some plans pay 100% of allowable charges after the deductible has been met. Most plans pay a lower percentage of these fees. To find out how much your policy will pay, look at your benefit summary.

It's common for health insurance plans to pay one percentage to "preferred" providers, and another percentage to "non-preferred" providers. This means that the insurance company has two different fee schedules, and the physicians and other health care providers can choose which one they want to sign up for. "Preferred" providers are usually paid less, but they get more business from insured patients so they may feel it's a good business decision. However, many providers don't sign up at all, and these non-participating providers are not obligated to write off any charges over the amount your health insurance will pay.

The "stop-loss" clause:

For worst-case scenario budgeting purposes, you need to look at what is sometimes called the "stop-loss" clause. Some companies call it the "maximum coinsurance." Others call it the "out of pocket." This is the greatest amount of money you will have to pay out in a given year, if you always use the insurance company's contracted providers. (They have no control over non-participating providers, who will bill you for anything the insurance doesn't cover).

Each policy is different, so you'll need to search for the stop-loss clause, and then carefully read the fine print to see how it's computed. It can be anywhere from $500.00 from your own pocket for an exceptionally good policy, to $10,000.00 or more for a policy with fairly inexpensive premiums. The maximum coinsurance is per-person, so multiply the number of people in your family by the amount of your out-of-pocket clause. If your policy has a clause that says only three family members have to meet their stop-loss, you only need to multiply using this number.

If you have met your deductible, and your insurance company pays 80% for participating providers, your doctor will send you a bill for the 20% that your insurance policy doesn't pay. You will continue to get a bill until you've met your out-of-pocket maximum, when your insurance starts paying 100% of allowable charges.

So, to compute the maximum you might pay for health care this year, add the monthly premiums for your insurance to the maximum coinsurance amount, plus the total in deductibles for all members of your family. There may be additional charges, for non-covered services, for instance, or for charges from non-participating providers, but these numbers should give you a ball-park figure for your yearly budget.