• zInternationalStudents Blog

  • Sunday, July 23, 2017

  • How health (or any kind of) insurance works

    Filed Under: Health Insurance
Ever wondered how exactly health insurance works? How some company can charge you $100, and yet pay a $100,000 coverage for your health care expenditure? We try to clear up some facts regarding this.

Consider your university is the insurer, you (the international student) are one of the insured and your contribution is the premium. Let us take some numbers and see if they add up. Please bear in mind that these are numbers just for explaining, and not real premiums or sum assured values.

You are covered for an amount of $100,000. There are 10,000 students in the university. If we multiply these , we get 10 billion. That doesn't seem to make sense. Here comes something that is referred to as risk factor. The chances of one person falling ill and needing coverage is a lot, and that is a risk not worth taking for any insurer. But when we look at this big a group, the chances of everyone falling ill is greatly reduced.

The risk factor is, say, 5% i.e. around 500 students will need to make a health insurance claim. That means, a maximum of 50 million dollars can be claimed. The premium per student now is $50,000,000 / $100,000 = $500. Not everyone will make the full claim (based on statistics, actually less than 20% of them will), that means a) the premium can be further reduced, and b) it is the profit margin of the insurer.

The insured will get the money when needed, the insurer a healthy margin. Everyone is benefited.
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