To understand how to reduce your premium you must first understand what makes your premium more expensive. Here is a list of more than ten items that can increase the rate of your premium.
1) A Low Coinsurance Percentage
The lower the Coinsurance Percentage the more risk there is to the insurance company, and the less shared expense that you have for major medical issues. To see how coinsurance works see "What is a Coinsurance?"
2) A Low Deductible
The lower the Deductible the higher the risk is to the insurance company, and the less shared expense that you have for major medical issues. To see how deductibles works see "What is a Deductible?"
3) Lots of Copay features
The more Copay benefits your plan has the more rich the plan is, and the more risk the insurance company assumes. To see how Copay's work see
"What is a Copay?"
4) A Low Out-of-Pocket Maximum
The lower your out-of-pocket maximum is the less shared expense there is on major medical issues, and the more risk the insurance company assumes on major medical issues. To understand how an Out-of-Pocket Maximum works see "What is an Out-of-Pocket Maximum?"
5) High Lifetime Maximum Coverage
The higher the value of the Lifetime Maximum benefits paid, the more risk there is to the insurance companies. Most policies have Lifetime Maximums between 3 - 8 million dollars. Some of the insurance policies come with options to select the Lifetime Maximum coverage level thus giving you options on how rich you would like your plan to be, and how high you want your premiums to be. For example United Healthcare has a 3 million dollar Lifetime Maximum with an option for 5 million. If you increase the Lifetime Maximum from 3 to 5 million dollars on those policies it costs and additional $7.00 a month.
6) The Comprehensiveness of the Prescription Drug Plan
There are typically four types of prescription drug plans offered in individual healthcare plans. The first is no coverage at all. Obviously this is the cheapest of all options since you pay out of pocket for all of your prescription drug needs.
The second option is a "Prefer Price Card", or what is know as a "One Tier" system. A Preferred Price Card provides you with a network discounted rate that is typically 10%-40% depending on the drug and the pharmacy. This is a decent option if you do not use a lot of prescription drugs and you are looking to keep your insurance premiums cheap.
The Third option is what is known as a "Two Tier" system. In a two tier system you will have a Copay option for your generic level drugs and a discount card for your brand name drugs. Typically the copay is $10-$15 for the generic drugs, and the discount for brand name drugs is around 10%-40%. Some plans can even add a specific pharmaceutical deductible that needs to be satisfied before the discount is applied to the brand name drugs. The Pharmaceutical deductibles can range from $50-$500so be very careful not to miss this important detail. Obviously the higher the deductible the affect it has on the premium.
The last option is the most comprehensive of all options. It is known as a "Four Tier" system. In this system drugs are divided into four categories. They are Generic, Preferred Brand Name, Non-Preferred Band Name, and Injectibles. Generic, Preferred Brand Name, and Non-Preferred Brand Name make up tiers 1-3, and tiers 1-3 account for about 98% of the drugs in the industry. The remaining 2% are injectibles. In a Four Tier system you will typically have a copay for the first three tiers, with the possibility of Tier 2 (Preferred Brand Name) and Tier 3 (Non-Preferred Brand Name) having some sort of small deductible that needs to be satisfied before you receive the copay options. Tier 1 will always be a copay without any deductible that needs to be satisfied. Tier 4 (Injectibles) will not typically have a copay benefit to them. However they will come with a very minimal coinsurance responsibility, like 25%. A real world example would be if you needed a high end antibiotic that costs $1000 per instance. In that Tier 4 scenario you would only be responsible for $250 of the $1000 cost.
A Four Tier system is the richest benefits that you can purchase in the individual health insurance industry and obviously makes your plan more expensive.
7) Your Age
There is no mystery here. The older you are the more health issues you have probably had, and the less likely you are to heal. With the possibility of pre-existing conditions added to the fact that your recovery period is longer as you get older, there is far greater risk to insure a 50 year old than an 18 year old. More risk the insurance company means higher premiums. It's really that simple on this one.
8) Your Zip Code
One of the more obscure factors that affect your premium is your Zip Code. Despite several studies that have shown that your care here in Orlando is not any better or worse than the care provided in Miami, the cost of office visits and care in Miami is significantly higher. That higher cost of healthcare is passed on to the patient in the form of higher insurance premiums. For example a 18 year old male in Orlando will typically pay between $80-$120 a month for a good health insurance plan. However, in Miami, the same 18 year old can expect to pay between $110-$170 a month for a similar policy.
9) Higher Weight Relative to your Height
Your weight relative to your height is what makes up your "Body Mass Index" or BMI. Studies have shown that the higher your BMI the higher your risk of healthcare issues. Typically companies will rate you into one of five categories.
The first category is "Preferred 1" or "Preferred Plus". This category is for folks who have lower BMI but are not so slim that they are unhealthy. They have also had Credible Insurance Coverage in the last 63 days. Preferred 1 rates are the best rates in the industry.
The second category is "Preferred 2" or "Preferred". This category is made up of applicants who have the same BMI levels as Preferred 1 applicants but have not had Credible Coverage in the last 63 days. Rates for Preferred 2 applicants are typically 5%-20% higher depending on the company. The reason why is simply that if you have not had Credible Coverage it means that you have, more than likely, not been doing regular checkups and there could be something that has popped up in the last 63 days. On personal note, we don't necessarily agree with this 63 day rule, but for folks who have not had coverage in years, it makes sense.
The third category is "Standard 1" or "Standard". Applicants in this coverage tier will typically be outside the preferred BMI index, but not significantly. An example would be, a male that is 6'0 tall would be a Standard 1 rating if they weighed 125-139 pounds or 206-242 pounds. They would be Preferred between 140-205 pounds. If they are above 242 pounds they would be considered and more significant risk, and rated in the fourth category, "Standard 2".
Standard 2, is the fourth category and it is the most expensive rating that and insurance company will extend coverage to. Typically this is a category that has a rate increase of 25% above the Preferred 1 rate, depending on the company. If you do not fit into a Standard 2 rating then you fit into the fifth category.
The fifth category is when an applicant gets declined for health insurance due to a very aggressive/progressive BMI. In the insurance companies eyes there is simply to much risk to insure a person in this category, and they site many health complications that can arise from have a BMI that is to high.
10) Your Healthcare History
If you are in good health, you have done routine preventative check ups, and all the results have been "normal", then typically you will not have coverage "rated up" or "ridered out". If your results have NOT been normal the insurance company can not spread that risk out over a large group. To offset the risk they will typically charge more for the coverage or they will approve the policy with a rider that excludes coverage for that particular "abnormal" ailment.
Riders can come with different durations. Some can be as little as 14 days while others can be permanent. You will not know how a policy will be approved until the underwriter has reviewed the Medical Information Bureau Database and compared it to the information submitted on the application. To make sure you are happy with the coverage and the way that it is approved, there is typically a free look period that you will have so that you can ask questions about any riders or rate-ups. If you decide not to keep the policy, all premiums paid for the policy are refunded as long as it is canceled in the free look period.
11) Your Tobacco Use History
Smoking, or any tobacco use in the previous 12 months is typically an automatic rate up. There have been far too many health concerns that are linked to tobacco use. For more information on the types of diseases tobacco use can cause, visit any of these sites and you will see why this is typically and automatic rate up.
12) Do You Ride a Motorcycle or have a Motorcycle License
Participation in driving a motorcycle can cause your policy to receive a rate up depending on the company you submit your application with. If you run into a company that is charging you extra premium for riding a motorcycle, then you should work with an agent that can find you a company that does not view motorcycle riding as a health insurance risk.
Summary of How Do I Lower My Premiums
While there are factors that are beyond your control, like Age and Health Care History, you can reduce your healthcare costs several other ways. If you smoke, quit. If you are overweight, get in shape. If you ride a motorcycle, find an insurance provider who does not penalize you for owning and operating a motorcycle. If you have a very comprehensive insurance plan, look to increase your Coinsurance level, your Deductible, and your Out-of-Pocket Maximum. You can also look into removing some of your Copay features, and reduce higher levels of prescription drug coverage. All of these factors add risk to the insurance company and since insurance is purely a risk/reward business, the more risky you are to insure, the more your premium will be. It's really that simple.
Lastly, work with an insurance agent who multiple options, listens to what your needs are, and what your budget is, and has the financial understanding to use their expertise and find you exactly what you are looking for.
NOTE : If you are talking to a "Captive Insurance Agent", they can only offer you one product and they can not give you the options that you deserve.
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