Thursday, July 20, 2006

At Risk

What is your amount at risk on a particular claim?

If you lack insurance, your amount at risk is the full amount. If you have insurance, the amount at risk will be determined by a number of factors. Things to consider in evaluating your at risk amount include:

Plan deductible
Plan coinsurance stop loss limit
Hidden provider charges
Amounts excluded by contract
Amounts covered by supplemental insurance

Most of the plans I write for clients have an at risk amount of $150 or less on accidents and anywhere from $3000 - $5000 on illness.

So what is at risk when it comes to health insurance?

Your monthly premium is an amount at risk. The amount is a known entity from month to month (at least until renewal) but is a factor in calculating your at risk amount.

Add to that your outlay for copays and deductibles. Some plans have a separate deductible for Rx vs. major medical. Most plans have a family limit on number of deductibles that must be satisfied.

Add in your out of pocket (stop loss) limit under the coinsurance clause. Again, many plans will have a family stop loss limit.

Add in your out of pocket for items excluded under your policy and for charges by non-par providers. This is also known as hidden provider charges.

Sum it all up and you have your at risk amount for the year.

Some things are relatively easy to calculate for an at risk total. Your monthly premium is simple. The number of trips to the doctor or your medication may be a bit more of a challenge.

Figure the routine medical charges as just that . . . routine and something you can manage financially. Look instead at the worst case scenario by adding your premium to the deductible and stop loss limit.

As an example, a family of four can choose a low deductible plan and pay about $500 per month in premium. Their at risk for any one family member is limited to $1000 per year with deductibles & stop loss. Total at risk is $7,000 ($6000 in premium + $1000 at risk on a major claim).

Same family, higher deductible. This time the premium is $280 per month and the amount at risk on a large claim is $2500. The total at risk for the year is $5860 ($3360 in premium + $2500 on any single claim).

At risk amount is similar but by rebalancing the risk premium against the amount at risk the client saves almost $1200 per year in a “bad” claim year and around $2600 in a “good” claim year.

If you don’t know how much is at risk you are in danger of having financial and credit issues.

If you have not balanced your at risk amount with the premium paid you are probably paying too much for coverage.
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