Of all the types of insurance out there, health insurance is perhaps the most important. After all, without our health, it’s difficult to do much else in life. However, in the United States, which relies mostly on a private health insurance system, costs are high, and it’s often very confusing to know how much you can expect to pay.
This is because you can get health insurance in many different ways. You can buy it on your own, receive it from your employer as part of your compensation package, or get it from the federal government.
However, just because the world of health insurance is confusing, it does not mean you need to pay more than you should, and knowing the average costs of the many different types of health insurance can help you understand if your premiums are fair or if it’s time for a change.
Below we’ve outlined all the different factors that determine the cost of your insurance and also identified the average rates for the various options out there. In addition, you will find some tips to help you save on your insurance so that you can get the care you need at the best possible price.
Health Insurance at a Glance
Factors Affecting the Cost of Your Health Insurance
As you can see, health insurance is expensive. However, depending on your situation, what you actually pay for health insurance could be significantly less than what it actually costs.
But on the other hand, you could be paying more than the national average. To help you make sense of your health insurance premiums, here is a breakdown of all the different factors that affect how much you pay.
Probably the biggest thing affecting how much you pay for health insurance are the subsidies you receive. For many people, these subsidies come from their employers and serve as a focal point of their benefits package. But how much your employer contributes to your healthcare plan varies from organization to organization. Some will pay almost your entire premium, whereas others will only cover a portion, meaning you will be expected to pay more of your own money.
Other subsidies come from the government. If you have a low income and/or a significant number of dependents, you may be eligible for either cheaper healthcare or tax credits that make your healthcare burden smaller.
These days, most government subsidies are doled out as a part of the Affordable Care Act (ACA, or, as we know it now, Obamacare).
How much you pay for health insurance will depend heavily on your deductible. As with other types of insurance, the deductible is the amount of money you will be expected to pay before your coverage kicks in.
When it comes to health insurance, though, your deductible can be in the thousands of dollars, which means you may end up paying for most of your healthcare bills out-of-pocket while still paying a monthly premium.
However, this is only the case when you choose a high-deductible healthcare plan, which does come with lower premiums, but at an obvious cost. Conversely, lower deductibles reduce your out-of-pocket expenses, but they also come with higher premiums.
Clearly, when it comes to healthcare, there’s no cheap way to go. But for many, paying a higher premium for better coverage is often preferred as it reduces the risk of all of a sudden being left with an enormous medical bill you can’t pay.
After you reach your deductible, your insurance company will start to cover your healthcare expenses. But few if any plans will pay for every expense you incur beyond your deductible. Instead, they will contribute a percentage of the cost, and you will be responsible for the rest.
However, insurance plans come with yearly out-of-pocket maximums that limit how much you will have to pay. If you reach your deductible and out-of-pocket maximum, then any additional costs will be covered 100 percent, but this will come after you’ve spent a small fortune on healthcare.
Unfortunately, if you are buying individual insurance (more on this later), it’s likely your out-of-pocket maximum will be quite high because it is expensive for insurance companies to cover just one person. Managed-care plans (more is also coming later) tend to have lower out-of-pocket maximums, but these pans are more exclusive and usually require an employer to help you cover costs.
Insurance companies allow you to add dependents to your policy so that you can make sure not only you but your family members are covered. Typically, once you start adding dependents, you are on a “family” plan. There are usually limits to the number of people you can add to the policy (typically four), and then you will need to start paying more. But as you can expect, family plans, since they cover more people, are considerably more expensive than individual plans.
In the end, an insurance company is protecting you against risks to your health. And by nature, older people are at a greater risk of experiencing health problems than younger people. As a result, the older you get, the more expensive your insurance will be. To give you an idea, consider the average healthcare costs for the following age brackets:
- Children under five – $2,725/year
- Children and teenagers ages 5-17: $1,921
- Adults aged 18-44 – $2,985
- Adults 45-64 – $6,406
- 65+ – $11,316
As we’ll discuss later, insurance companies cannot deny you coverage or charge you more for pre-existing conditions. However, when it comes to tobacco use, insurance companies can and do charge smokers more.
This is because there is now so much evidence about the adverse health effects of smoking that insurance companies do not want to bear the extra risk of covering a chronic smoker. To give you an idea of how much tobacco can affect your insurance costs, consider that smokers pay 15-20 percent higher premiums than non-smokers.
Types of Insurance
Taking into account the factors above, something else that will affect the cost of health insurance is the type of insurance you have. In general, there are three options:
- Individual insurance, which is purchased and paid for directly with monthly premiums.
- Managed healthcare plans. These are typically purchased on behalf of a group, which provides you with lower premiums and deductibles. But these plans often come with restrictions.
- Medicare. For those over 65, Medicare, which is funded by the federal government, is probably going to be your primary insurance provider. Costs are subsidized by the social security taxes you have paid, but you will still be expected to cover premiums and some out-of-pocket expenses.
Individual Health Plans
When buying an individual health insurance plan, meaning one that is not provided by an employer or the government, there’s a good chance you will be doing so through a state or national marketplace set up by the Affordable Care Act passed during the Obama administration.
Your monthly premiums will depend on the subsidies you receive as determined by your income, but you will still need to choose which plan you want, and this is one of the things that will have the greatest impact on the cost of your health insurance. More specifically, you will need to choose the amount of coverage you want, and as you might expect, the more coverage you have, the more you pay.
All plans cover the following expenses. The main differences between each one are deductibles and out-of-pocket expenses:
- Addiction treatment
- Ambulance services
- Newborn and pediatric medical services
- Chronic disease treatment
- Emergency services
- Lab services
- Maternity care
- Mental health services
- Occupational and physical therapy
- Prescription drugs
- Preventative and wellness services (vaccines, physicals, cancer screenings, etc.)
- Speech-language therapy
More expensive plans will offer you additional coverage, and they will also reduce the amount you will be expected to pay out-of-pocket. These two factors have a significant impact on the cost of your health insurance, and they will be determined by which of the following plans you choose, which are outlined below.
Catastrophic insurance is a relatively new type of insurance plan that was created as a result of the Affordable Care Act (ACA). These plans are typical high deductible – the minimum is $1,350 for individuals and $2,700 for families, but the averages are much higher.
However, once you’ve met your deductible, your coverage kicks in and will take care of any additional healthcare services you may need. Some plans will cover 100 percent of the costs you incur, whereas others will cover a percentage until you reach your out-of-pocket maximums.
In instances where you are not fully covered after reaching your deductible, these plans can become very expensive. The maximum out-of-pocket costs for individuals is $6,750 and $13,500 for families. So, if you get sick and wind up in the hospital, you could be on the hook for thousands of dollars of medical bills despite having insurance.
Despite the risk of having to pay a lot out of pocket, catastrophic policies are popular for some people because the premiums tend to be much lower than with other plans, sometimes just a few hundred dollars a month. But even if you are young and healthy, purchasing a minimum plan such as this carries considerable risk.
In fact, in some states, catastrophic plans are not available, and when they are, there is often an age limit for purchasing them. For example, in many places, you must be under 30 to buy a catastrophic plan. Anyone older is considered too much of a risk for such a plan.
But it’s not all doom and gloom with catastrophic plans. By law you are entitled to three “free” primary care visits per year, meaning they are not included in your deductible, and you can also access certain preventative services such as immunizations and cancer screenings without having to spend your own money.
After catastrophic plans come the “metaled” plans, the first of which is “bronze.” As the name suggests, bronze plans are the lowest on this tier. They are only slightly above catastrophic plans in that they require you to cover most of the costs of your healthcare.
Typically, with bronze plans, your insurance company pays about 60 percent of your healthcare and then you pay the other 40 percent. Premiums for bronze plans are slightly higher than those for catastrophic, but they are still quite affordable. The average is about $201/ month or $2,411/ year. In general, while coverage can be considered good for some, bronze plans, like catastrophic plans, carry considerable risk and should be purchased with caution, or only when the only other option is going without insurance.
Moving up the tier, silver plans reduce your out-of-pocket expenses but require you to pay higher premiums. With a silver plan, the insurance company pays about 70 percent of your expenses and you are responsible for 30 percent. This means lower deductibles and higher out-of-pocket maximums, but it also means more expensive premiums.
On average, silver plans cost $247/month or $2,961 per year. Silver plans are the most popular because they provide considerable coverage and have relatively affordable premiums. But if need constant care, a silver plan might turn out to be slightly too expensive for you.
Silver plans are also popular because you must purchase a silver plan to take advantage of cost-sharing reductions, which are special savings given to qualified individuals. Such discounts could allow you to get silver coverage for a reduced rate, and who wouldn’t want that if they had the chance?
Gold plans cover about 80 percent of your healthcare costs, leaving you to have to deal with just the remaining 20 percent. Deductibles and out-of-pocket maximums are lower than those of silver plans, but they are higher than platinum plans. Premiums are also higher, as we would expect, with averages coming in around $291/month, or $3,487 per year. This is an affordable option for those who need care more than the typical person.
Your last option when buying individual insurance is a platinum plan. Since this is the most precious of all the “metaled” plans, we are right to assume it provides the best coverage. Platinum plans cover 90 percent of your expenses, meaning you only need to cover 10 percent with your deductible and out-of-pocket maximums.
However, this type of coverage is pricey. Average premiums are $363/month or $4,360/year. As a result, these plans are only recommended for those who are going to need frequent care.
Managed Health Care Plans
If you get your health insurance through your employer or some other organization, then there’s a chance you will be enrolled in a managed healthcare plan. These help keep costs down by pooling people’s resources and limiting who can access care. If you’re enrolled in such a plan, you can expect to pay less than you would if you bought individual insurance, especially if you receive a subsidy from your employer.
However, within managed healthcare plans there are a few different options, which are:
Health Maintenance Organization (HMO)
This type of managed care plan is built around a network of healthcare professionals. Members, which could include you, can take advantage of discounted rates by working with doctors who belong to the HMO.
Essentially, insurance companies work out price discounts in advance, and doctors accept them in exchange for the consistent client base that comes from working with an HMO.
In general, this can make healthcare quite affordable for you by providing you with lower premiums and lower deductibles, although this is not always the case.
However, if you belong to an HMO, it’s important to know that you are only covered when you get care within your network. If for any reason you need to go outside of the network, such as when you need to get some special treatment or to have an elective procedure, it’s most likely that your insurance will not cover you at all, meaning you will need to foot the entire bill.
Preferred Provider Organization (PPO)
Much like an HMO, a PPO is also built around a network of healthcare professionals. And while it’s cheapest, and also preferred, to receive care from in-network physicians, it is possible to get at least some coverage, albeit partial, when working with out-of-network doctors.
These types of plans are typically ideal for those who need special treatment from physicians who do not work with HMOs, or in instances where there are no doctors nearby participating in an HMO.
However, when you do go out of network, you will typically need to pay the entire cost upfront and wait to be reimbursed. But since you are using your managed plan, costs are predictable and you can know how much you will need to pay before seeking care. Plus, there are limits on how much
Point of Service (POS)
POS plans are essentially a hybrid between an HMO and a PPO. With these plans, you will work with a doctor who belongs to and participates with a network of healthcare professionals. But when you need to see a specialist outside this network, it’s typically quite easy for you to obtain a referral and receive this care.
Typically, there are out-of-pocket maximums with POS plans, which could be beneficial by putting a cap on how much you will be expected to pay out of your own pocket every year.
One other type of health insurance you can get is Medicare, which is a federal program designed for people aged 65 years or older. It’s paid for from the social security taxes that were taken from your wages throughout your career, so to get these benefits, you need to have been employed and paying these taxes for a minimum amount of time. As a result, if you’ve spent all or most of your career working for yourself, you probably won’t qualify for Medicare when you retire.
Medicare eligibility is determined by quarters, which refer to three month periods. To find out how many quarters you have, simply calculate how many three month periods you worked and paid taxes. You may need to speak with your accountant or tax professional if you’re unsure how many quarters you have.
Quarters are important not only because they determine eligibility, but they also determine how much you will need to pay in premiums once you decide to go on Medicare, something we will cover shortly.
There are also different types of Medicare, known as parts. Here’s a bit more about each:
Medicare Part A
Medicare Part A covers basic inpatient and hospital expenses, meaning you will be covered if you are admitted into the hospital for any reason. There is a $1,364 deductible, and when you’re admitted to the hospital, you will be expected to pay certain amounts depending on how much time you are admitted. Here’s a breakdown of the costs:
- Days 1-60: $0 per day
- Days 61-90: $341 per day
- Days 91 and above: $682 per day per lifetime reserve day ( of which you have 60)
- After lifetime reserve: All costs
In addition to this, you will need to pay a premium, the cost of which is determined by the number of quarters you’ve worked. Here’s what you can expect:
- Less than 30 quarters: $437
- More than 30 quarters: $240
Medicare Part B
Medicare Part B covers outpatient costs, which occur when you need care but have not been formally admitted to the hospital or require care from a normal doctor. Unlike Medicare Part A, the premium you pay does not depend on quarters worked. It’s $135.50 for everyone.
The deductible is $185 per year, and after you’ve met your deductible, you will pay 20 percent of the Medicare-approved costs, which are worked out between your doctor and the federal government.
If you have a higher income, you may need to pay more.
Medicare Part C
Medicare Part C is an alternative form of Medicare that combines Part A, B, and D. You buy it through a third-party, and many do this to streamline their Medicare experience. Part C plans are preferred because many also include vision and dental, which are not a part of most Medicare plans. Premiums for Part C plans vary, and sometimes you don’t even need to pay one, but they can cost as much as $300 depending on your income and coverage type.
Medicare Part D
Medicare Part D covers prescription drugs, which are often one of the most expensive parts of healthcare. The exact premium you pay will depend on your income – the more you make or made, the more you pay. The minimum is $33.19 per month, and the maximum deductible is $415. Both numbers have gone up in recent years.
Interestingly, nearly all the different types of plans we’ve discussed cover you for more or less the same things. The only real differences are the amounts for which you’re covered and the amounts you’ll be expected to pay when you need healthcare.
However, there are some things not included in this list that are necessary to many patients. If this is you, then you will need to add supplemental coverage to your policy, which will drive up your premiums even more.
Here are some of the most common forms of supplemental coverage as well as their average costs.
Vision covers you for yearly eye exams and other procedures related to your eyes. In some cases, your vision insurance may even cover prescription eyeglasses or contact lenses. The average cost of vision insurance is between $20-50 per month.
Most of us grow up going to the dentist every year, getting braces, having cavities filled, and, in a worst-case scenario, having crowns put in and teeth removed. However, dental insurance is not normally covered under most plans. The average cost to add it is $14-30 per month.
When someone contracts a health disease that has no cure and instead requires long-term care, such as Alzheimer’s disease, most insurance policies will not cover you. In these instances, you will need to purchase long-term care insurance to make sure you can cover the considerable expenses that come from receiving care over a long period of time. As you might expect, such insurance is expensive, with most policies costing between $2,727 per year, or $227 per month.
Disability insurance covers you in the event something happens to you and you can no longer work. Coverage includes payments that help you make up for lost income resulting from your physical inability to work. There are two types: short-term and long-term.
Short-term disability insurance usually covers you when you cannot work for periods of 60-180 days. Long-term covers you when you are out of work for more than six months. In some cases, you may be able to collect disability insurance all the way up until you are eligible to collect retirement benefits.
The cost of disability insurance varies, but because coverage requires insurance companies to dole out a good bit of cash, it’s usually quite expensive. More specifically, disability insurance usually costs between one and three percent of your annual income.
Critical illness insurance is not one that many people know about, but it could be useful. It costs between $25-$50 per month, and it pays you a lump sum (predetermined by your policy) in the event you are diagnosed with a critical illness, such as cancer. This infusion of cash can really come in handy if you need to cover some immediate expenses that are well outside your budget, but obviously adding this to your policy will raise the overall cost of your health insurance.
Factors That Don’t Affect the Cost of Your Health Insurance
We’ve spent a good bit of time talking about all the things that affect the cost of your health insurance, but it’s important to spend a moment to discuss the things that cannot factor into how much you pay, as this will avoid you from being subjected to unfair and even illegal treatment.
In the past, insurance companies used to be able to charge men and women different rates based purely on the fact that they were a man or a woman. However, this is no longer the case. Insurance companies would be foolish to try and do this today, but it’s something to keep an eye out for as your shopping for policies or examining your own.
Before the passage of the Affordable Care Act, insurance companies could charge new patients with existing conditions more money. In some ways, this makes sense – a patient who already has diabetes is going to be a higher risk than one without – but it set up a system where those who were sick and most in need of care were at a significant disadvantage when it came time to access that care.
The ACA made it illegal for insurance companies to charge people extra for pre-existing conditions, so if the one you’re working for is trying to do this, you need to report them to the authorities and seek a new healthcare company.
How to Save Money on Your Health Insurance
As you can see, health insurance is a complex and confusing world, and it’s one that can quickly consume every penny you earn.
Unfortunately, there aren’t many ways to save on your insurance, which is just one reason why so many people feel the system is spiraling out of control: there are no real ways to manage costs. But there are some things you can do to try and keep your bills down:
Lead a Healthy Lifestyle
Of course, eating fruits and vegetables, exercising, and avoiding things such as alcohol and tobacco don’t guarantee your health and longevity, but they do give you better overall health. This will reduce your dependence on care and limit the number of claims you need to make, meaning you pay less of your deductible and keep out-of-pocket expenses under control.
Because of deductibles, you will likely need to spend money every time you go to the doctor. So, if you’re trying to save money, consider getting into the habit of thinking twice before rushing off to the doctor. Don’t put your life in jeopardy, but try to be more conscious of when you make a claim so that you can reduce your costs and save money.
Check for Subsidies
If you’re struggling to make ends meet, and health insurance has become a burden, you may be able to get some help from the Federal government. This tool from the Kaiser Family Foundation will give you an estimate of how much help you can receive. Savings are determined based on your income and your family size, information you will need to apply when inquiring about discounts.
To some, seeking out such a discount might seem like you’ve become overly-dependent on the government, but these programs have been designed and are funded to help taxpayers such as yourself. Don’t be a martyr and look to see if there are any ways to save by asking for help.
Negotiate With Your Employer
If you receive health care benefits from your employer, don’t forget that these are a part of your overall compensation package. As a result, if you are due for a raise, consider asking for a better health insurance deal instead of a higher salary.
It’s tempting to try and put more money in your pocket, but with healthcare costs getting higher and higher each year, you may end up making more money overall by reducing your healthcare expenditures.
If you’re about to start a new job, remember you can negotiate this as well, so don’t forget to consider all your options before accepting an offer.
Open an HSA Account
A Health Savings Account (HSA) is a special type of savings account that can be used to pay for medical expenses. Essentially, you deposit money into the account, where it earns interest, and then you withdraw it when you need to pay for healthcare. Its main benefit is that this money is tax-free, which is not the case with your traditional bank accounts.
However, for this strategy to work, you need to make sure you enroll in an HSA-eligible health plan, so make sure to check with your agent to see if this is possible.
With so many different types of health insurance out there, and so many different factors affecting the premiums you pay, figuring out how much you owe and how to save can give anyone a migraine. However, we hope that this detailed guide has made things a bit clearer and easier to understand, and now that you understand the world of health insurance better, consider taking some steps to reduce how much you pay without sacrificing the care you need.