Premium Healthcare

By: EconomyWatch Content   Date: 24 February 2010

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Premium on healthcare is the contribution made by the insurance holders as the cost of buying the healthcare cover. Consequently, a high premium on healthcare results in a higher net healthcare cost. In fact, escalating healthcare premium is blamed for the high healthcare costs in the US, which surpassed $2.3 trillion dollars in 2007. This figure represented approximately 16% of the US GDP, according to the Kaiser Family Foundation.

Factors Determining Premium on Healthcare Insurance

A premium on healthcare is computed by actuaries employed by a healthcare insurer. The actuaries arrive at the final premium figure by taking into consideration the cost of advertising, selling and administering individual healthcare covers. Finally, a profit margin desired by the insurer is factored into a figure derived by the actuary, and this is the amount charged from the insurance holders.

From the insurance holders’ point-of-view, a healthcare premium is affected by several factors, some manageable and some beyond their control, including:

 

·        Type of healthcare plan and coverage: Some healthcare plans only provide a basic cover, such as reimbursement of physician expenses; while others are more comprehensive, reimbursing even the cost of surgery.

·        Deductibles: This represents the out-of-pocket costs, typically a flat-dollar amount, paid by the insurance holder before receiving the reimbursement from the insurer. The higher the percentage of the deductible, the lower is the healthcare premium.

·        Co-payments: This is the ratio in which medical expenses are shared by the insurer and the insured. The higher the insurance holder’s copayment share, the lower is the premium on healthcare.

·        Lifetime maximum value: This implies the value of healthcare covered offered through the lifetime of the insured. A higher maximum offers more coverage, consequently the premium on healthcare is also high.

 

Additionally, an insurance holder’s age has significant bearing on the premium on healthcare. Individuals in the lower age groups qualify for lower premium insurance and those near or in their retirement age obtain higher premiums. This is because the older one gets, the greater are the chances of sustained chronic disease treatment. This, in turn, increases the overall healthcare expenditure by the insurer. Finally, the premium on healthcare is affected by the insured’s medical history. Individuals with flawless medical records can easily manage to acquire lower premiums on insurance plans.


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