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Understanding the costs of health plans

To help you understand what health insurance really costs and how that can fit into your budget, let’s look at what these different costs are, what affects them and the ultimate financial value of having health insurance.

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Types of health insurance costs

Premium

Premiums are the payments you make each month to your insurance company for your health insurance coverage. You’ll need to you pay this bill every month, to make sure that you’ll have coverage for your care when you need it, even if you have an unexpected illness or injury. If you have an individual or family plan that you personally purchased, you’ll pay your insurance company directly. But if your insurance is employer sponsored, you’ll likely have your portion of the premium deducted from your paycheck. 

Deductible

A deductible is the dollar amount you must pay for certain covered health care services each year before your health insurance plan starts to pay. Once your deductible is paid in full, you usually pay only a copayment or coinsurance for any covered service. Typically, when you have a higher deductible, you’ll have a lower premium. Similarly, with a lower deductible, you’ll often have a higher premium.

Copayment (Copay)

A copay is a flat fee that you may have to pay for covered health care services when you go to an in-network health care provider. For example, if your plan has a $25 copay for visits to a primary care doctor, that’s the flat fee you’ll be responsible for paying for each primary care visit. Often, you’ll have different copay rates for different types of care. You may even have a copay associated with prescription drugs. Some plans may require your deductible is paid first before you pay copays.

Coinsurance

Once your deductible has been met, you may have to pay coinsurance, which is a percentage, for certain covered services. You’ll pay a percentage of the allowed amount that your health insurance company has negotiated with in-network providers. For example, if you have 20% coinsurance, you’re responsible for 20% of covered services while your health insurance company covers 80%.

Out-of-pocket maximum limit

Your plan will have an annual out-of-pocket maximum, which is the most you’ll pay each year for services covered by your health care plan. This maximum includes payments you make for covered services, like deductibles, copays and coinsurance. However, it doesn’t include your premium costs or any payments for services not covered by your plan. Once this maximum has been reached, your insurance plan will pay 100% of covered medical services for the rest of the year.

What affects health insurance premiums?

These five factors can affect the monthly premium cost of a plan:

  • Age – Health insurance rates are typically higher for older people than they are for younger people.
  • Location – Premiums can vary widely by location, including state of residence and county.
  • Number of dependents covered – Having more people covered under one plan will result in higher premiums.
  • Plan type – Typically, plans with richer benefits have higher premiums than other plans.
  • Tobacco Use – Premiums for smokers are higher than for non-smokers.

The following factors don’t affect your health insurance premium:

  • Medical history
  • Gender
  • Current health

How to estimate your annual total cost

Because there’s no way to be sure what medical expenses you’ll have in a year, it’s impossible to predict the exact annual cost of care. However, you can get an idea of your estimated total cost of care. 

First, you’ll need to determine the expected care for you and each family member on your plan. For instance, if you expect to have few visits to the doctor with occasional prescription drugs and no expected hospital visits, you might expect a low level of care. But if you think you’ll have more frequent doctor visits with lots of prescription drugs and at least one expected hospital visit, you might expect a high level of care.

Once you have an idea of the level of care you’ll need, you’ll be better suited to find the annual total cost for each of your plan options. If you’re searching for plans on the Health Insurance Marketplace, you can enter your level of expected care and the Marketplace will show you estimated total yearly costs for each plan. If you’re working with a licensed insurance agent, they can also help you estimate your total cost. 

With a better idea of which plan is suited to your expected level of care, you can feel more comfortable in determining which is best for your needs and budget.

Frequently Asked Questions

If you don’t have access to health insurance through an employer, you may be eligible for affordable health insurance through the Affordable Care Act (ACA).

It’s possible that you can get financial help to pay for your health insurance plan if you qualify.

They review information such as:

  • Your household income
  • Your family size and individual ages
  • Where you live
  • The amount of financial help you get will be based on this information. If you qualify, you'll pay a lower monthly cost for your health plan.
     

Yes. A health savings account (HSA), health reimbursement account (HRA) or a health care flexible spending account (FSA) can help you pay for eligible medical expenses. You must choose a health insurance plan that offers one of these tools to use them. If you do have a plan that offers one of the above accounts, you could use the pre-tax funds in the account to save and pay for qualified health care expenses. 

With a deductible, you’ll need to pay a specific amount on covered services before your health insurance starts to share costs with you on covered services. So, if you have a deductible of $1,000, you’ll have to pay 100% of covered medical expenses until you’ve paid a total of $1,000. Once that has happened, you begin sharing the cost for covered services with your plan by paying coinsurance.

This depends on your needs. Often, a higher deductible comes with a lower premium, which can be helpful if you have a limited budget. With a higher deductible, you can save on what you pay each month, but you may need to pay more when you need care. A lower deductible may come with a higher premium, but it means you will have more predictable costs no matter what unexpected medical bills pop up.

When you’ve met your out-of-pocket maximum, your health plan will pay for covered health care services and prescriptions for the rest of the year. 

Learn more about health insurance

  • How to choose a plan

    Ready to take the next step? Explore our guide on how to choose the right plan for you when shopping for health insurance.

  • Types of health insurance plans

    Dive deeper into the types of insurance plans, like HMO plans and PPO plans, and the benefits and drawbacks each one has.

Policies have limitations and exclusions. The amount of benefits provided depends on the plan selected and the premium may vary with the amount of benefits selected. 

*As part of the American Rescue Plan, consumers and ACA enrollees may benefit from higher subsidies. Amount of subsidy and savings is based on subsidy eligibility, annual income, age, county and the plan selected.

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