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What is Health Insurance Policy and Types of Health Insurance


Health Insurance Definition:

Health insurance is one the most important types of insurance policy that covers insured with surgical and medical expense. It is highly recommended that everyone should buy it, without health insurance, you or your family member’s illness or accident can wipe all your money and put your financial status into jeopardise for a long period of time. Let us understand, “What is Health Insurance” and how this insurance policy works.

Under Health Insurance, You get paid for your medical expenses covered under insurance contract by paying regular premium. Many of the Health Insurance policy also covers your healthcare bills, hospital bills, medical examination, treatments, medicines, drugs, etc.

There are various types of health insurance plans with variety of coverage, limitation and conditions. Read the offer document carefully before accepting the insurance contract agreement. Verify and understand all the clauses properly added by the insurer. Question them in case you disagree with any terms or conditions and ask them to add any specific clause which you additional wish to add with the insurance policy. Upon modification and clarification you can accept the policy.

Additional Costs:

Beside premiums, there are different expenses incurred with insurance policy. Let us investigate what and how you would compute them.

Deductible: The amount that you will pay from your pocket. The deductible can extend in amount depending how much you want to pay from your pocket. Mostly lower the deductible higher is the premium.

Co-insurance: The percentage of expenses divided between both the parties under medical contract policy. For example, in this medical policy, potential risk of loss is split between insurer and insured at 80:20 ratio respectively. This protection guaranteed that insurer with pays 80% of the expense upon deductible. This type of coverage is associated by a Preferred Provider Organization (PPO).

Co-payment: These refer to the cap amount set that you will pay every time you go for medical facilities. This type of coverage is associated by Health Maintenance Organizations (HMO). For example, each time you visit your specialist, you may need to pay Rs.1,300/- (or around $20) as a co-payment. These payments as a rule do not contribute toward out-of-pocket approach maximums.

Stop-Loss Limit: The total expenses of covered costs in excess of the deductible and after co-insurance payment stops and the insurer has to pays 100% of covered costs. The reason for stop-loss limit is to limit excess costs incurred for the insurance covered person.

Let us take an example of stop-loss to understand further, assuming that your health insurance policy is featured with below criteria:

  • Deductible: Rs.26,000/- (or around $400)
  • Co-insurance: 80:20 (Insurer will pay 80% and you will pay 20%)
  • Stop loss limit: Rs.2,60,000/- (or around $4,000)

Suppose after purchasing health insurance policy you go to the doctor’s facility and incurred medical expenses of Rs.7,80,000/- (or around $12,000). How much amount you should pay?

Let’s begin with step by step:

Step 1: Subtracting deductible from the aggregate cost of expenses.

Rs.7,80,000 – Rs.26,000 = Rs.7,54,000/- (or around $11,600)

Step 2: After deductible, You will have to pay 20% of the total expenses occurred.

Rs.7,80,000 x 20% = Rs.1,56,000 (or around $2,400)
Taking everything into consideration, you will need to pay Rs.1,82,000/- (or around $2,800) out of pocket (Rs.26,000 as deductible + Rs.1,56,000 of co-insurance).

Result: You will have to continue paying out of pocket until your maximum stop-loss reach to Rs.2,60,000 (or around $4000). After that point you will no longer have to pay since you have reach to the maximum amount out of pocket. When you calculate after all this expenses paid, you will notice that cost paid was a small pinch from your wallet and that cost is not at all painful from emergency or long-run illness.

Types of Health Insurance Policies:

Let us understand “different types of health insurance policies” offered by insurance companies.

Indemnity Plan: 

Charge for administration is also called as an indemnity plan. These sorts of plan assist you to reimburse by schedule for healthcare expenses regardless of service provider. Coverage of the plan includes:

  • Hospital stays
  • Surgical expenses
  • Major medical coverage

Under these types of plans, the insurer pays a specific amount per day basis for certain number of days. The expenses paid can are calculated either by percentage ration 80:20 between insurer and insured respectively or by actual expenses incurred.

Health Maintenance Organizations (HMO):

The HMO is a widely recognized type of insurance contract agreement mostly provided by corporate employers or business owners. HMOs give varieties of medical services to a group of subscriber at a fixed periodic rate.

Preferred Provider Organization (PPO): 

A group of health care service provider get tide with insurance company as a third party services for health care to provide services at discounted rate are called as Preferred Provider Organization (PPO).

Point of Service (POS):

A POS is a consolidate plan of a indemnity, HMO and PPO Plans which permits you to choose the plan at the time you require health care services. For example you can choose health care services by going in-network care or outside network care of health care insurance.

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