Navigating healthcare can be tough in America. One of the components of healthcare that is most confusing is the cost of health insurance. Everyone needs insurance, and most people know very little about what they are getting when they pay for it. I want to ease this pain by doing a little demystification. I want to break healthcare costs into general components and provide the most relevant details for each category. I want to explain the influence that different factors have on healthcare costs, and I want to show you how you can quantify those quality improvements and ultimately make more informed decisions about what risks you are willing to take with your health and for your wallet. My ultimate aim is to help you answer this question: how much does health insurance cost in the United States?
In order to truly understand the cost of health insurance, we need to have a good understanding of how health insurance functions. There are many reasons that people pay different amounts of money for health insurance, and I am going to go over some of these at a high level. As we go through the different categories of information that determine health insurance costs, I want you to be thinking about your own situation and how each of the components might apply. In part 2, we are going to start from the basics—what health insurance does and how it protects your health and wealth. It is important to have a solid understanding of these aspects because the amount of coverage you need ultimately informs how much insurance costs.
Importance of Understanding Health Insurance Costs
To understand how health insurance works in the U.S., you really need to develop a sound understanding of the financial component of this investment. Whether you’re buying insurance on the health exchange, getting a new plan from an employer, or re-enrolling in an existing plan, it’s beneficial to have a firm grasp of how much your insurance will cost. To know this is to prevent surprise spending or debt later on.
Many shifts in the health insurance landscape could influence prices, including recent changes to government insurance programs and increasing numbers of uninsured individuals in some states. That’s why the cost of health insurance in various parts of the country may differ considerably. Costs will go up and down each year. If you’re prepared, you can make sound healthcare decisions and start spending less overall. Health care can be costly, and having a better understanding of insurance costs and how health care pricing operates could also be calming.
Understanding what you’ll pay in insurance premiums and health care costs could also assist in building a financial plan for how to effectively manage medical bills. Health care expenditure can have a significant effect on your financial well-being. By understanding what your insurance may or may not cover, and if you have a health event covered, you may begin to build tactics that help you handle medical bills. Most of the time, health insurance is a necessity when someone gets hurt or ill, but it may also be an effective tool for protecting your well-being.
Key Components of Health Insurance Costs
When budgeting for healthcare expenses and premiums, it can be helpful to comprehend the primary elements of the costs too. In the U.S., the cost of health insurance is comprised of premiums and one’s out-of-pocket money for the healthcare sought. Below are the main components that will decide how much a policyholder will pay for healthcare as well as to predict the amount that will be spent for care in the forthcoming period.
A premium is the price tag instituted by a healthcare provider for insurance plan enrollees to maintain coverage. Premiums are installed, and they could transform with the end of a plan year. The cost of a premium is formulated and most of the time presented each month, and varies by issuer and plan level. A general rule of thumb is that the higher the premium, the more thorough the coverage. When it comes to a premium, the more comprehensive a plan is, the higher the premium. A monthly health insurance cost is the easiest way to think of premiums. It could be available via the employer and include the employee’s contribution plus the amount the employer contributes. Calculating the premium is through an analysis of the claims submitted by the enrollees of a particular plan, looking at things like hospitalizations, emergency department visits, doctor office visits, etc., and assessing the frequency and the cost. Divided by the number of people in the plan, the plan premium amount is then formulated. It’s important to understand that just because someone enrolls in health insurance, the premiums do not get refunded.
A deductible is a monetary amount that an enrollee must pay out-of-pocket for their healthcare costs before the health insurance picks up the remaining tab. In more detail, the deductible is the amount the enrollee pays for covered care prior to the health insurance company paying out the covered benefit. If an enrollee fails to meet their set deductible, they have to pay the full cost of the services. The deductibles tend to reset during the open enrollment period, at the plan year you were making the payment in. The cost of deductibles can fluctuate based on the particular healthcare plan selected, as well as any deals with healthcare providers and the premium amount of the plan throughout the employer. Collateral costs may also exist like a second healthcare plan, which has a premium, a deductible, the financially responsible enrollment period, or services not covered by the primary plan. A carefully constructed plan management assessment and analysis of deductible amounts can be used to calculate deductibles.
Premiums
A premium marks the base price of personal health insurance, which is also the most important cost included in your health insurance policy. It refers to the periodic amount that you will have to pay in full or in installments, typically on a monthly basis, to an insurance company in order to maintain the insurance policy. In general, a health insurance premium can be influenced by various factors, including the applicant’s age, residence, smoking status, and coverage options. Consumers are often faced with the trade-off between relatively affordable premiums and high deductibles or relatively expensive premiums and low deductibles. To make sensible trade-offs between premiums and deductibles, it is critical for consumers to assess how they utilize and spend on health care and what type of plan best fulfills their requirements. The premium price accounts for the unmet anticipated expenditure in a health benefit package. Furthermore, consumers can utilize the unsubsidized and post-subsidy premiums to determine whether a policy is worth the additional costs required. Budgeting for premiums is crucial, and individuals must take all other costs into consideration in order to correctly account for the costs in their financial budgets. The cost of health care insurance programs and the expense of health care utilization are increasing all around the world. Premiums for this year indicated the high costs of health insurance. These increases, which have persisted for many years, are considerably greater than the Consumer Price Index or income growth. Because these trends have persisted for some time, participants are typically entirely unaware that price cuts have been taking place. In order to comprehend price changes, it is essential to know trends in rates over the past several years.
Deductibles
The second critical component of your health insurance costs (not counting your premium, the monthly amount) is your deductible. A deductible is the out-of-pocket amount an insured is required to pay before their insurance begins to cover costs. Once an insured reaches this amount, the coinsurance feature of the policy generally takes over to provide additional cover for medical expenses as detailed by the policy. As with copays, individual health care plans vary in the deductible amount and range from $0 and up. Plans containing high deductibles often have low premiums compared to plans with low or no deductibles. As a rule, the variation in premiums is directly proportional to the height of your deductible. In general, when health insurance premiums go down, there are generally higher out-of-pocket costs. While making higher deductible plan choices may yield lower monthly payments, an insured must also account for the probability of having to pay greater out-of-pocket expenses in the future.
When considering health insurance plans that vary in deductibles, one should look at the average health care usage of the members of their family. If you are considering a high deductible plan based on the assumption that minimal health care services are needed in the immediate future, consider the effects of this decision on the health management of you and your family. A deductible is only worth having if an insured has free cash to cover medical expenses up to the threshold value. This may potentially create a scenario where an ill person needs care but refrains for fear of weakening their current financial position.
Co-payments and Coinsurance
A second important term to understand when it comes to cost-sharing is “co-payment” or “co-pay.” These words tend to be used interchangeably and refer to a fixed amount that you pay for specific services, irrespective of what the service costs. Co-payments are a set amount—like $5 or $20—whereas coinsurance is a percentage and is usually worked out following a previously agreed maximum amount that the patient will pay out of pocket.
An advantage of the co-payment system is that you can budget according to it. However, cost-sharing studies show that even with a co-payment, some will still avoid seeking certain services based on their cost. State legislatures often require uniform copayments by plan and by service. But a few unique plans still out there have systems that differentiate co-payments based on service. Similarly, states currently prohibit co-payments being charged for mandated preventive care services.
Co-payments for pharmaceuticals can vary within the same health plan with the formulary method. Slightly different in that it determines “co-payments” by categories is the tier method. What you may not realize is that every “ride” thereafter, whether another car or not, you could be recharged your $89 co-payment. “Coinsurance” plans are typically seen as low deductibles. In a health plan with these elements, when patients pay, it is typically 20 percent of the cost of the service, medical device, appointment, or medicine. Given chronic conditions that often require lengthy treatments, many consumer advocates find a coinsurance model increases co-payment risk exposure for such individuals among society’s unhealthiest. Co-pay and co-insurance costs are important to take into account when calculating how much it may cost for health insurance and what you may have to pay for care. In the table below, imagine how hard the decision may be to determine which plan might be best given your monthly budget expectation and what medical care you may need.
Example: Mary has a medical plan that requires her to pay a $25 co-payment each time she sees a doctor or has any medical test and a prescription co-payment of $20. The plan requires a $250 hospital admission charge. The monthly premium is $300. If Mary went to her doctor twice a month for six months, spent $50 on prescriptions, and was not admitted to the hospital for this six-month period, the total cost Mary would be charged is $1,500 ($300 per month + $25 x 12 = $300, $20 prescription x 6 = $120). Now let’s reprioritize if our needs and expectations of care are different. As an enrollee with a medical benefit, there may be a number of combined health care expenses I could anticipate in a year’s time. Plan A may not be the best option considering I go to the doctor often. Suppose now my medical usage had changed as illustrated in the table. Given the same scenario in outputs, with a more erratic use of care, Plan B may now be the more favorable of the two medical products. It is important to remember these costs when deciding which plan is best for you. Different medical plans with a variety of “co-pays” and other co-insurance options that differ based on a fixed-dollar coverage amount versus monthly budget amount may yield differing out-of-pocket medical expenses.
Factors Influencing Health Insurance Costs
Any number of factors can influence the cost of health care in the United States, including the inclusion of vision coverage, prescription drug coverage, and the maximum amount of coverage outlined in the policy, which can range from a few hundred thousand dollars to unlimited policy coverage, as well as a number of other important factors. But there are also a variety of risk factors that a given individual may have that can also influence their premium for better or for worse, as well as their very ability to be eligible for a particular policy in the first place. One major consideration will be the individual’s age (those between the ages of 18 and 61 have some of the most choices, while those who are over 62 or under 18 usually enter into pooled or subsidized health insurance programs).
Gender is also a prime determinant of costs for health insurance, as men and women across the board tend to get different types of health care; in general, this makes the costs of health care to be higher for women overall. Pre-existing conditions and general health also play a major role in risk assessment for health insurance plans. There are some medical conditions that are considered to be more high risk than others, and certain ones may make it difficult for a person to be eligible for a given insurance program in the first place. A person’s location also has an impact on their premium, and indeed, it can have a great impact: someone living in New England will generally pay up to 150% less for health insurance than, by comparison, someone who lives in the Rocky Mountain States. Finally, U.S. citizens are among the highest users of prescription drugs in the world, and including prescription drug coverage can increase the cost of the policy significantly.
Age and Gender
Age and Gender
Age and gender can influence how much you’ll pay for health insurance. Here’s what you need to know:
1. Age: Younger people tend to have lower health insurance premiums than older adults. As individuals age, they’re more likely to get sick. Individuals aged 65 to 74 spend 1.5 times as much, on average, in healthcare costs as those aged 18 to 44. Because more claims are anticipated from older enrollees, insurers increase their premiums to account for this added medical risk.
2. Gender: Before the Affordable Care Act, women were sometimes charged more than men for health insurance coverage. In their reproductive years, females typically require more preventive doctor visits, including maternity care, and more prescription drugs. Some states and insurance companies also had market norms and pricing structures that charged women more for individual health policies. Insurers would also charge men and women differently because of the protection against gender discrimination.
Even though a variety of factors played into women and men possibly paying different premiums in the same insurance pool, a viral internet myth suggests that allowing states to impose gender pricing would result in men paying less for health insurance. A gendered description for health insurance pricing can be misleading because of the difference in policyholders’ experiences across health insurance markets. Gender and age-related differences in premiums aside, make no mistake: men do require healthcare different from women at many points in their lives. Any advance in awareness should diminish the tendency to conceptualize gender as fundamentally linked to a sexual body. It is possible the internet hoax drew attention to the broader landscape of insurance pricing discrepancies—leaving people to wonder about the equity of these differences.
Location
Section 3.2. Location
Geography plays a significant role in determining the cost of health insurance. The primary cause of geographic variation in price is the difference in healthcare provider networks and access to healthcare services in dissimilar regions. Premium prices and potential variation depend on the competitive nature of an insurance carrier and the number of healthcare providers with whom a carrier has agreements in a given area. Eligible benefits also contribute to determining the affordability of healthcare should the individual need to seek care. As such, factors such as the cost of living, availability of services, and a myriad of state-based regulations dictate differences in premium prices. Therefore, local geographical and network conditions must be taken into consideration when shopping for health insurance.
In part because of the scarcity of healthcare providers and services, insurance investors face hurdles in identifying the risk associated with offering coverage. Though limited in scope in some rural areas, this risk adversity is helpful by enabling insurance providers to reduce prices to potential investors. The more competitive urban areas lead to higher average risk per capita. While the rate at which prices increase or decrease based on local averages will differ between insurance carriers, geographical variation does serve as a baseline measure for the ability to afford quality health insurance. For low-income individuals and families, the ability of residents to afford their coverage is a matter dependent on the type of health insurance policy, local network premiums, benefits, and geographic region. Individuals will ultimately be able to compare and select a specific insurance provider’s policy based on the price offered at a certain number of benefits, the geographic region reflected in the average price for that specific insurer’s policies, and local network premiums.
Pre-existing Conditions
As discussed, the three most common forms of health insurance coverage in the U.S. are employer-based insurance, Medicare, and Medicaid. However, a unique aspect of U.S. insurance is that many people are required to change coverage at least once in their lifetime when moving to a new county or employer. This idea of “churning” exposes people to threats associated with coverage gaps and pre-existing conditions. A pre-existing condition is any health issue you had before the first day of a brand new health insurance policy. Some pre-existing conditions, especially those that result in high medical expenses, can lead to outrageously expensive health insurance. In some severe cases, people can be denied health insurance altogether due to their pre-existing conditions. Many states have “high-risk pools” that allow people to get health insurance to cover their pre-existing conditions if they have been uninsured for a specific amount of time and have a denied insurance application.
Between these rejections and the medical underwriting penalties for a pre-existing condition, it is comprehensible to conceal a pre-existing condition from their insurance application. Nevertheless, it is extremely important for the consumer to know that the Affordable Care Act does not accept or allow market segregation based on health acuity. Since 2014, insurance carriers can no longer refuse an insurance applicant for coverage due to the person’s health history. But to guarantee that a successful application ensures the proper premium amount, consumers struggling with chronic health conditions should not intentionally or unintentionally misrepresent or conceal any number of pre-existing conditions. Failure to disclose chronic diseases carries serious consequences since the insurance carrier can retroactively refuse payment for services. Although it is understandable that most insurers do not publicize how they handle clients with pre-existing conditions, it is important to maintain the highest level of integrity and honesty while shopping for insurance.
It is normal and legitimate for the refusal of insurance due to a pre-existing condition to feel like “another punch in the gut.” At the end of the day, consumers should feel like strangers would not reject them if they had been as honest and forward as possible. So not only is it illegal, it does not make sense to deny these pre-existing conditions in your insurance application. However, it is great to note that the trend of penalizing consumers with chronic diseases is diminishing, particularly with some chronic diseases.
Strategies to Manage Health Insurance Costs
A number of strategies can be employed to manage health insurance costs. To start, plan for your medical needs and potential health care expenses before an emergency arises. Consider the right balance between premium and out-of-pocket costs to minimize annual spending, maximize your care, or both. Knowing how different plan options work can also help in making an informed purchasing decision. Furthermore, your plan may offer discounts or a set number of free preventive services to encourage you to maintain optimal health. These benefits can help save you money in the long run by preventing and catching issues earlier to avoid more expensive treatments or conditions down the road. Use these discounts to your advantage when they are available to you. Shopping around for the best plan can also help save upfront costs while also providing better benefits. Shop annually or as needed if your plan changes. Plans change benefits, add benefits, or discontinue services on a regular basis. Review the Summary of Benefits and Coverage your insurance company provides and call with any questions before making a choice. Utilize the benefits your employer offers and, when feasible, take advantage of Health Savings Account contributions with the annual tax benefits. The premiums you pay to your insurance company over time will continue to climb, but the tax advantages you have with this account can help to mitigate these costs. Finally, review your coverage each year to ensure it still meets your needs and budget. Financial literacy in health insurance, as well as asking the right questions and flushing out what is important to you, can maximize the impact of the cost of insurance for everyone. Understanding these tips and obtaining the necessary health insurance coverage at a reasonable price can be as important as your health.
Choosing the Right Plan
The best insurance plan for you is one that meets your specific needs and offers the best balance of benefits and costs as compared to other plans. Benefits include network provider access, prescription drug coverage, copays, coinsurance, deductibles, cost-sharing assistance, and any extra services or benefits. Costs are typically your monthly insurance premium, any deductible, and uncovered services. In addition to checking on these plan features, you may want to know if the plan is likely to still be a good value for your particular needs if your overall health gets better or worse.
Another factor that may influence your choice is the Dallas-Fort Worth area’s population health dynamics, which can be different from state or U.S. population dynamics. Some insurance plans may screen and/or steer enrollees toward services proven to be effective at an efficient, population-based cost. While the following sections of this guide give you the questions to consider when looking at each health insurance plan, keep in mind that consumer-based websites can serve as a secondary source of information, as well. These sites offer user-friendly, quality comparisons, tools, and customer reviews that can complement your research. It can take hours to properly evaluate and compare health insurance plans. It is a time-consuming but critical process for choosing the insurance plan that is best for you under your unique circumstances, which, of course, include your family and its health status. If you are uncomfortable making this critical health services planning decision by yourself, some individuals may benefit from getting professional advice from a licensed insurance agent or broker or a certified applications counselor.
Utilizing Preventive Services
Using Preventive Services
Preventive treatments, shown to save money and lives, are one of the benefits mandated in most health insurance plans. Vaccinations, screenings, and wellness checkups are considered to be some of the preventive services which, when used, can save individuals and insurance plans money as well as provide them with clarity on how much care is being used. By switching from obtaining a balance of both preventive and non-preventive services about four years ago to now obtaining nearly seventy percent preventive services, more people are protecting their health and finances. By receiving preventive services, a person can often stop an illness from progressing to a more serious stage that might have required expensive treatment. Although nine out of ten health plans must cover recommended preventive treatments for children at no charge, only about 60% of consumers are aware that this preventive care is offered. Many adults have also resisted obtaining regular checkups.
If many people are not receiving these lifesaving services, how do we know that these services do save lives and money? Health plans must cover most recommended preventive treatments at no charge due to a provision in the Affordable Care Act and the bipartisan Workforce Reconciliation Act. Doctors, upon first diagnosing an illness, are often able to use treatments to halt or slow the progression of the illness through the use of exams, screenings, treatments, or lifestyle changes. Only half of Americans received key preventive services in 2005.
In conclusion, health insurance coverage requires a massive financial investment from Americans of all ages. But premiums and deductibles are not the only costs of interest. Filling in for lost salary and investment opportunities are also among the most significant costs of health insurance. No wonder, then, that health insurance preservation is also a significant component of financial planning and living harmoniously and fruitfully. The sums of money and potential income missed as a result of deteriorating health can be associated with ever-rising insurance premiums.
A plan’s costs can vary greatly according to individual situations—be it due to age or location, among others—so there isn’t one-size-fits-all advice for managing costs effectively. But one strategy is universal: stay informed. Now, we know that health insurance is more than just coverage. It is an investment in your health and wealth. Health expenses are advanced as far as we can predict, but they are also surprisingly uncertain. Over time, health care practices and the services delivered have evolved. So, make time in your future days to inquire, find out, and perhaps be surprised by what happens next. We live in an interesting period in healthcare. Policymakers push for variations in the way health care is given. The insurance business has been disrupted. Health coverage is growing. But these are not the things we know for certain; they are only signs. We know now that health coverage also includes financial management. If our health insurance is not being used to cope with life’s uncertainties, we need to change the way we purchase, contribute to, and use health coverage.
